The dollar held near two-week highs on Wednesday after a senior Federal Reserve official reaffirmed the requirement for further rate increases and as investors sought shelter in the currency thanks to simmering Sino-U.S. trade tensions.
The dollar has come under some pressure lately on signs the Fed might slow down the pace of its future rate growth amid cooling worldwide development and concerns about world trade, investment and corporate earnings.
Though, in remarks on Tuesday Federal Reserve, Vice Chair Richard Clarida backed further rate hikes. However, he said the tightening path would be data dependent. He said monitoring of financial data has become even more critical as the Fed edged ever nearer to an impartial position.
“Clarida comments certainly hinged toward hawkishness…we expect the Fed to remain consistent and adjust monetary policy according to incoming economic data which has so far been pretty robust,” said Stephen Innes, head of trading, APAC, at Oanda.
“We are expecting the Fed to raise rates in December and 3 times in 2019.”
Innes noted the dollar’s strength also reflected risks around the upcoming G20 summit in Buenos Aires between Nov. 30-Dec. 1 where U.S. President Donald Trump and his Chinese counterpart Xi Jinping are planned to meet and talk over controversial trade matters.
Trump remarked this week in an interview with the U.S. reporters that it was “highly unlikely” he would accept China’s ask to hold off a planned rise in tariffs and had scared riskier assets in an boost to safe-haven currencies together with the dollar and the yen.
Awareness will now turn to a speech by Fed Chairman Jerome Powell later on Wednesday and the minutes from the Fed’s Nov. 7-8 meeting on Thursday. Investors would be looking to further hints on how numerous more times the U.S. central bank is likely to climb rates in 2019.
Trump has repetitively criticized the Fed and Powell on the U.S. central bank’s financial policy stance, saying increasing U.S. rates were harming the economy.
“Fed relishes independence and their approach is very mathematical and systematic. Under no circumstances do we expect the U.S. central bank to be pressured by Trump,” Innes said.
The dollar index (DXY), a gauge of its value versus six major peers, traded at 97.42 after climbing for three sessions in a row. The index is sitting just lower than this year’s high of 97.69.
The yen was largely unchanged at 113.75 on the dollar, but not far off a two-week low of 113.83.
The euro changed hands at $1.1295, gaining 0.07 percent versus the dollar. The single currency has lost 1.5 percent of its value in latest sessions because of indications of enfeeble euro zone financial momentum.
Somewhere else, sterling was lower at $1.2733. The pound is likely to stay under pressure as traders bet that British Prime Minister Theresa May would fail to get the permission for her Brexit agreement in a fractious parliament.
The Australian dollar, frequently considered a gauge for worldwide risk appetite, traded flat at $0.7223. Analysts say the Aussie dollar remains in danger to further drops amid sharp losses in the cost of iron metal, a key export for the nation, and as U.S.-Sino trade tensions showed no signs of decreasing.