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Forex

Dollar struggles near 6-week lows, no Fed hike expected soon

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The dollar inched up but stayed close to six-week lows against a basket of currencies on Wednesday, kept under pressure by the view that the U.S. Federal Reserve will raise interest rates later rather than sooner.

The greenback had been on its best run of weekly gains in 1-1/2 years until last week, when expectations that the Fed would clearly signal a near-term rate hike were disappointed, and U.S. growth data came in much weaker than expected.

The dollar index inched up 0.2 per cent on Wednesday but at 95.284 remained close to Tuesday’s low of 95.003 and was down 2 per cent compared with a week ago, before the Fed’s policy statement.

In London, UBS Wealth Management currency strategist Geoffrey Yu said the dollar had been boosted by a risk-off mood in U.S. trading on Tuesday, when indexes suffered their worst day in a month on lower oil prices and lacklustre inflation data. But he said any gains on risk-aversion would be capped.

“We’re caught in this kind of trap where every time we get nervous about something, the dollar rallies, but then the next thing to think about is: is the Fed going to react to that by pushing out their rate views?” Yu said. “And then you can’t afford to be long dollars that aggressively any more. So that’s why we have these turns, quite rapidly.”

Paul

The author Paul