© Reuters.
By Peter Nurse
Investing.com – The US dollar gains positions at the beginning of the trading day in Europe this Wednesday, driven by the increase in the yield of US Treasuries after those of the December meeting of the Federal Reserve fueled expectations of an early rise in interest rates and also raised the issue of the reversal of the bank’s bond purchases.
At 8:55 a.m. (CET), the, which follows the evolution of this currency with respect to a basket of six other major currencies, rises 0.2%, to 96.392, remaining close to the one-week highs recorded on Tuesday.
“The minutes revealed that committee members considered inflation risks to be more persistent and upward, and there was general agreement that the reduction should be accelerated with three tentative rate hikes,” says Jeffrey Halley, an analyst at OANDA, in a note.
While this was mostly what Chairman Jerome Powell said after the December meeting, the yield on the five-year US Treasury, which is highly sensitive to interest rate expectations, is hitting nearly two-year highs. This was also because the minutes indicate that some monetary policy makers are pushing for the Fed to start selling some of the bonds it has bought in the past two years back on the market.
Additionally, Fed fund futures estimate an 80% chance that the Fed will rise a quarter point at its March meeting.
The down 0.2% to 115.93, remaining close to the five-year highs recorded at 116.35, while the down 0.2% to 1.1290. The pair fell 0.3% to 1.3518, while the highly risk-sensitive one plummeted 0.8% to the 0.7160 level.
The Federal Reserve minutes cited an extremely tight labor market as the main point of concern, and data released Wednesday showed an increase of more than 800,000 private sector jobs in December, more than double what was expected.
Weekly data for is released this Thursday, ahead of Friday’s key report for.
“We suspect that March is too early for a rate hike, given the lack of visibility caused by the Omicron variant, but May is clearly on the table,” analysts at ING (AS 🙂 say in a note.
On the other hand, the pair points to a rise of 0.3% to the level of 6.3749, despite the fact that China’s services sector grew more rapidly in December, rising from 52.1 to 53.1 in November .
The pair is up 0.8% to 13.7879 as Turkey will release its latest data on foreign exchange reserves later this day. The country’s central bank recently unveiled a plan to compensate lira holders for any foreign exchange losses, in order to curb the strong sell-off of their currency by cutting interest rates. However, it has also intervened heavily in currency markets.
“According to my calculations, the lira has already reversed about 35% of its gains from the last week, and if the reserves go down a lot tonight, the watchdogs of the Turkish lira will be back in force,” Halley adds.