Dollar firms as Fed minutes fuel rate hike views, yen gains

The dollar moved higher on Thursday as minutes from the Federal Reserve’s most recent policy meeting firmed expectations for a rate hike this month, but a broadly risk-off sentiment in Asia aided the Japanese yen.

The minutes of the Federal Reserve’s June meeting, released on Wednesday, revealed that the clear majority of policymakers foresee additional tightening in US monetary policy, despite agreeing to leave interest rates constant last month.

The dollar rose somewhat, as did Treasury yields, but equities fell, as expectations strengthened that the Fed will begin its rate-hike campaign this month and that rates would remain higher for longer in order to contain inflation.

The euro was last 0.09 per cent lower at $1.0843, while sterling dipped slightly to $1.02702.

The US dollar index gained 0.02 per cent to 103.36.

“The FOMC minutes seemed hawkish with some committee members favouring a rate hike, though none voted for one at the end,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.

“It heightened the impression that the June pause was an interim one.”

Markets are now pricing in an 89 per cent chance that the Fed will raise rates by 25 basis points at its policy meeting later this month, according to the CME FedWatch tool.

The yen, however, jumped more than 0.5 per cent against the dollar to 143.86, as concerns about the global growth outlook, resulting from the aggressive monetary tightening cycles by major central banks, weighed on risk appetite.

The Japanese currency is traditionally considered a safe haven asset.

“(The yen) was stronger on risk-off mode as fears of additional tightening may weigh on growth, risk assets,” said Christopher Wong, a currency strategist at OCBC.

“This is largely in line with our caution that worries of global growth concerns and rates staying higher for longer remain intact and may well curb risk appetite.”

The Australian dollar slipped 0.02 per cent to $0.6652, after having fallen more than 0.5 per cent in the previous session following a private-sector survey showing China’s services activity expanded at the slowest pace in five months in June.

The New Zealand dollar gained 0.11 per cent to $0.61855.

“The Aussie is very sensitive to every bit of news from China at the moment,” said Sean Callow, senior currency strategist at Westpac.

“Since we got that reopening-from-lockdown rebound in the services sector (in China) … it’s been a bit patchy, and I think markets are just not quite sure if the Chinese government serious about stimulating the economy.”

The Chinese yuan last bought 7.2581 per dollar in the offshore market, after having fallen about 0.4 per cent the previous session. The central bank set another stronger-than-expected midpoint fixing for the fourth-straight day this week, which traders believe is an attempt to prevent the yuan from weakening too fast and too far.

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