LONDON: The dollar hovered around its lowest levels of the year against other major currencies on Wednesday as inflation-wary traders awaited US Federal Reserve minutes, and China’s tough stance on cryptocurrencies sent bitcoin and ether tumbling.
With data last week showing the fastest increase in US consumer prices in more than a decade, fears are growing that interest rates will be raised sooner than expected despite Federal Reserve policymakers stressing the spike is temporary.
The minutes from the Fed’s most recent meeting, due later on Wednesday, are expected to confirm policymakers think a rate hike is still in the distance, but any discordant note or hint on when their position could evolve could have a significant market impact.
“The question is: when will the Fed change its mindset about inflation?”, said Kit Juckes, a strategist at Societe Generale, adding that for the time being, he expected a status quo on the monetary policy front.
In early European trading, the dollar index fell to a low of 89.686, a level unseen since Feb. 25, but gradually rose back against its basket of six major currencies.
It was up 0.23% at 90.019 at 1109 GMT.
Exposing the pressure mounting on prices across the global economy, UK inflation more than doubled in April to 1.5% from a month earlier, raising fears the rising trend was here to stay.
“We do not believe that higher inflation will be fully transitory as many in markets contend and as global central bankers seem to presume”, commented Kallum Pickering, an economist at Berenberg, adding he believes inflation is at a turning point. The British pound eased 0.3% against the dollar to $1.4165 but had reached one of its highest levels of the year earlier in the session at $1.4200.
In South Africa, consumer price growth rose to its highest in more than a year, weakening the rand.
Canada was also due to publish consumer price data later on Wednesday, but in the meantime the greenback ticked up against the Canadian dollar to C$1.2086, still close to its weakest since May 2015.
The euro, which hit its highest against the dollar since the beginning of January at $1.2223 earlier, retreated back to $1.2197.
In the Southern Hemisphere, the selling pressure on commodities weighed on the Australian and New Zealand dollars, which both retreated sharply about 0.7% against the dollar.
Cryptocurrencies tumbled after China banned its financial institutions and payment companies from providing services related to cryptocurrency transactions, and warned investors against speculative crypto trading.
Bitcoin briefly dropped to a three-month low of $36,250 and breached key technical levels while abandoning the closely watched $40,000 mark. It was still losing 11.2% at $38,103 at 1137 GMT.
Rival digital currency ether was down about 20% at $2,690.
Chinese financial institutions will not be able to offer cryptocurrency registration, trading, clearing, and settlement, in a blow to investors who were betting that digital assets will gain mainstream status.
“China has for some time been putting pressure on the crypto space, but this marks an intensification - other countries might follow now as central banks make strides towards their own digital currencies”, wrote Neil Wilson, chief market analyst at Markets.com.
“Until now Western regulators have been pretty relaxed about bitcoin, but this might change soon”, he added.
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