TOKYO, 15th May, 2024 (WAM) – The dollar dipped to a one-month low versus the euro on Wednesday amid lower Treasury yields as traders braced for a key U.S. inflation report later in the day that could dictate the path of Federal Reserve policy, Reuters reported.
However, the yen hovered close to a two-week low as a still-gaping yield gap between local bonds and U.S. peers continued to encourage selling of the Japanese currency.
The euro edged up 0.03 percent to US$1.0823 in Asian trading hours, and earlier rose to US$1.0828 for the first time since 10th April.
The U.S. dollar index – which measures the currency against six top rivals, but is heavily weighted towards the euro – eased 0.11 percent to 104.94, after dipping to a 1-1/2-week low of 104.92 earlier.
The benchmark long-term U.S. Treasury yield edged down to 4.4414 percent, extending a 3-1/2-basis point (bp) retreat overnight.
Wednesday's report on core consumer prices is expected to show consumer price index (CPI) rose 0.3 percent month-on-month in April, down from a 0.4 percent growth the previous month, according to a Reuters poll.
Fed Chair Jerome Powell gave a bullish assessment on Tuesday of where the U.S. economy stands, with an outlook for continued above-trend growth and confidence in falling inflation that, while eroded by recent data, remains largely intact.
Higher-than-expected consumer prices in the first quarter of the year were the driving force for a sharp repricing of the pace of Fed rate cuts, with those bets now pared back to about 45 bps of reductions this year.
Despite broad dollar weakness overnight against the majority of its peers, it continued to climb against the yen. The dollar edged back 0.12 percent to 156.245 yen on Wednesday, but had pushed as high as 156.80 overnight.
In contrast to U.S. counterparts, Japanese long-term yields stand at just 0.955 percent, even with Bank of Japan rhetoric turning more hawkish in recent days and prospects for another rate hike in June increasing.
The dollar's surge to a 34-year peak of 160.245 yen on 29th April triggered two rounds of aggressive yen buying that traders and analysts suspect was the work of the BOJ and Japanese finance ministry.
Elsewhere, the yuan bounced back from a two-week low versus the dollar as a report of a possible plan to ease the country's housing glut boosted sentiment, outweighing U.S. President Joe Biden's decision to impose steep tariff increases on an array of Chinese goods.
The dollar dropped 0.24 percent to 7.2232 yuan in offshore trading, after reaching the highest since 1st May at 7.2460 overnight.
Antipodean currencies also benefitted from the China optimism, with the Australian dollar gaining 0.32 percent to US$0.6648 after earlier reaching US$0.6651 for the first time since 8th March.
The New Zealand dollar climbed 0.37 percent to US$0.6062, and earlier touched US$0.6064 for the first time since 10th April.