New York, Feb 23 (BNA): The dollar strengthened on Wednesday after US Federal Reserve meeting minutes showed that policymakers are determined to use a slower pace of interest rate hikes to tame persistently high inflation.
The dollar rose in late trading, which pushed the pound down 0.58% to $1.2036, while the euro fell 0.44% to $1.0600. The dollar index rose 0.40% to 104.57, down from a high of 104.59 hit earlier in the day, Reuters reported.
“The Fed meeting minutes have just been released indicating that few officials could have supported a 50 bps hike at the last meeting, although most supported a 25 bps result. That is certainly supportive of the US dollar, which is a bit stronger now against most Other currencies “The theme throughout February has been a bias toward higher rates, and these minutes are consistent with that perspective,” said Minh Trang, senior foreign exchange dealer at Silicon Valley Bank in Santa Clara, Calif.
Minutes of the Fed’s Jan. 31 to Feb. 1 meeting said most officials supported the quarter-point increase because the slower pace “will better allow them to assess the economy’s progress” toward lowering inflation to their 2% target. But few participants favored a larger 50 basis point increase at the meeting, or said they “could have supported it.”
A slew of data in recent weeks has indicated solid business activity in the world’s largest economy, a tight labor market, strong retail sales and rising monthly producer prices. Hotter-than-expected data helped keep the dollar strong, but also added to concerns that the US central bank will likely need to keep interest rates higher for longer if inflation is to reach the Fed’s target.
Louis Federal Reserve Bank President James Bullard on Wednesday signaled the need to get inflation on a sustainable path toward that goal this year or risk a repeat of the 1970s, when interest rates had to be raised again and again.
The Fed’s target range is 4.5% to 4.75%, after quickly rising from 0% to 0.25% in March 2022. But Fed fund futures traders are now seeking the federal funds rate to reach 5.38% in July, staying above 5%. . year.
“The US dollar is reacting to the asset market as investors realize it may have been hasty to turn a blind eye to the Fed’s hawkish guidance at the start of this year,” said Jane Foley, head of foreign exchange strategy at Rabobank in London. Stronger-than-expected US data releases since the beginning of this month reinforced the Fed’s messaging about stronger longer interest rates.
Against the yen, the dollar cut its losses to trade little change today at 134.95.
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