The Dollar is still trading near three-week highs as investors continued to unwind bets on deep US interest rate cuts, pushing Treasury yields higher.
In Asian trading, the Dollar Index, which tracks the greenback against six other major currencies, was at 97.516, having touched 97.588 yesterday, 9 July – its highest since 19 June.
Further gains in the Dollar depend on the tone Federal Reserve Chair Jerome Powell strikes during two days of Congressional testimony starting later today.
Expectations for a 50-basis-point rate cut at a Fed meeting later this month have evaporated, following stronger-than-expected employment growth in June tempering predictions that the US central bank would opt for aggressive rate cuts at its upcoming meeting this month. However, investors still expect a 25-basis-point cut due to weak inflation and concerns over growing business fall-out from the US-Chinese trade war.
The Dollar could continue to creep higher if Powell’s comments on the US economy are perceived as neutral or even slightly hawkish, which would support the argument that additional rate cuts will be limited. Traders will also scrutinise closely the release of minutes from the Federal Open Market Committee’s previous meeting due for publication at 19:00 (GMT).
Renewed strength in the greenback would be an extra worry for the Pound, which is stuck near a six-month low due to uncertainty over how Britain will avoid a messy no-deal exit from the European Union.
Sterling slid to $1.2439 yesterday, with Brexit jitters and growing expectations of a Bank of England rate cut adding to the currency’s weakness. Sentiment for the Pound was also dampened after data showed sales at British retailers rose at their slowest average pace on record, highlighting trouble in the economy.
Data on British gross domestic product (GDP) and industrial output have been released this morning showed the UK economy rebounded in May thanks to a partial recovery in car production. Tomorrow, the BoE will release its financial stability report, which could help traders gauge whether the UK central bank will take a more dovish view of the economy.
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