NEW YORK: The dollar jumped on Tuesday as investors dialed back their expectations for a March rate cut from the US Federal Reserve, while the pound and yen dropped on signs of easing inflationary pressures.
Markets are pricing in a 71.4% chance of a 25 basis point (bps) cut in March from the Fed, compared with an 81% view in the prior session according to CME’s FedWatch Tool.
The dollar index, which tracks the greenback against a basket of currencies of other major trading partners, was up 0.75% to 103.17, after climbing as high as 103.38, its highest since Dec. 13. The index was on track for its biggest one-day percentage gain since Jan. 2.
The dollar briefly pared gains after a weak report on the manufacturing sector in the New York region.
The dollar briefly strengthened after Federal Reserve Board Governor Christopher Waller said the US is “within striking distance” of the Federal Reserve’s 2% inflation goal, but the central bank should not rush towards cuts in its benchmark interest rate until it is clear lower inflation will be sustained.
“(Waller) said there’s no reason to move as quickly as they have in the past, cuts should be methodical and careful,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.
“Waller is important because he is a hawk, he is obviously confirming what we already know and everybody at the Fed recognizes, that we have reached a peak.” The euro was down 0.64% to $1.0878 and poised for its steepest one-day percentage drop in two weeks as comments from European Central Bank policymaker Joachim Nagel on Monday attempted to curb expectations of early rate cuts.
Several policymakers from the ECB on Tuesday maintained a cloud of uncertainty over the timing of the moves, although interest rates are still likely to come down this year.
US bond yields rose on Tuesday after Monday’s holiday, with the 10-year up 9.1 basis points at 4.041%, supporting the dollar.
An ECB survey on Tuesday showed consumer expectations of euro zone inflation three years ahead fell in a November poll to 2.2% from 2.5%.
Sterling was last down 0.46% at $1.2668 after data showed British wage growth slowed sharply in the three months through November, supporting the idea that the Bank of England will cut rates heavily this year.
The dollar was 0.82% higher against the Japanese yen , at 146.93, after hitting 147.19, its highest since Dec. 7. Data showed Japan’s wholesale price index stayed flat in December from a year ago, with the rate of change slowing for the 12th straight month, taking pressure off the Bank of Japan to back away from its monetary stimulus measures soon.
In cryptocurrencies, bitcoin rose 1.39% to $43,085. It has fallen more than 6% since the Securities and Exchange Commission said it approved 11 applications for the first US-listed exchange traded funds (ETFs) to track bitcoin.
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