The dollar eased slightly but still traded at a 5-1/2-month high on Wednesday after Federal Reserve officials reiterated that the interest rate-cutting cycle was being put on hold to watch for new economic data, as assessments of the outlook for monetary easing for G10 central banks remained near zero. change
US central bank policymakers including Fed Chairman Jerome Powell have so far refrained from giving any guidance on when interest rates might be cut, instead stating that monetary policy needs to be tightened for longer.
The latest data shows that the US economy is on a different track than the Fed forecast, causing investors to reduce their bets on future rate cuts. Meanwhile, the risk of a widening conflict in the Middle East adds to the attractiveness of the US dollar as a short-term safe haven asset.
Some analysts said they still feel bullish on the US dollar at current levels.
The US and its allies are planning new sanctions against Iran following attacks on Israel. Bank of America changed its tone last week for the Fed's monetary easing which is now expected to start in December this year, and said the US dollar will strengthen further if the market rejects a rate cut from the Fed for this year.
Against a basket of currencies, the US dollar was last down 0.1% at 105.95, just below the five-month peak of 106.51 touched on Tuesday. This index increased by 4.8% for the year.
The US dollar traded lower against the euro at $1.0643 on Wednesday, not far from a 5-1/2 month high of $1.06013 touched on Tuesday.
"As the market is still considering almost two (Fed) cuts this year, the risk is for a hawkish reassessment in the coming weeks," said Olivier Korber, strategist at SG Markets. "This could put pressure on EUR/USD below 1.05."
Traders now expect a 40 basis point (bps) cut in 2024, well below the 160 bps they expected at the start of the year.
