NEW YORK :The dollar was mixed on Wednesday in what analysts said was largely consolidation following a sharp decline against major currencies on Tuesday after a ceasefire deal between Israel and Iran.
The dollar gained last week on concerns about rising Middle East tensions, before rapidly falling back this week, and traders are now focused on U.S. trade and interest rate policy.
“The market’s waiting for the next theme,” said Steve Englander, Head of Global G10 FX Research and North America Macro Strategy at Standard Chartered Bank NY Branch.
U.S. President Donald Trump revelled in the swift end to war between Iran and Israel, saying he now expected a relationship with Tehran that would preclude rebuilding its nuclear programme despite uncertainty over damage inflicted by U.S. strikes.
The greenback has also weakened on more dovish comments from Federal Reserve officials Michelle Bowman and Christopher Waller.
Fed Chair Jerome Powell on Tuesday reiterated in testimony before U.S. Congress that he expects inflation will rise this summer but also noted that if not for tariffs, the U.S. Central Bank would have likely continued to cut rates.
“The market paid attention to that,” as it appeared more dovish than Powell’s comments a week earlier at the conclusion of the Fed’s policy meeting, Englander said. “We’ve had the market bidding up cutting possibilities.”
Fed funds futures traders are pricing in 60 basis points of cuts by year-end, up from around 46 basis points last Friday before comments from the Fed’s Waller. The first cut is fully priced in for September.
Investors “are choosing to interpret Fed Chair Jerome Powell’s Congressional testimony to mean that the central bank is laying the groundwork for an early-autumn rate cut,” said Karl Schamotta, chief market strategist at Corpay in Toronto.
CONGRESSIONAL TESTIMONY
Powell resumes two days of Congressional testimony on Wednesday when he appears before the Senate Banking Committee.
Investors are also returning their focus to trade negotiations ahead of a self-imposed July 9 deadline by the Trump administration to negotiate deals that avoid reciprocal tariffs with trading partners.
Most likely, this deadline will be extended in order to avoid market volatility as U.S. Congress also works to pass a tax and spending bill due around the same time, said Englander. An extension of the tariff pause would likely be risk positive, and modestly dollar negative.
The euro was little changed at $1.1609, still near its highest since October 2021, as was sterling, which edged up to $1.3619, near its highest since January 2022.
The Swiss franc, which scaled a 10-1/2-year high on Tuesday, edged downwards to last trade at 0.806 per dollar.
The dollar made most headway against the yen, rising 0.49 per cent to 145.62.
Bank of Japan policymakers called for keeping interest rates steady for the time being due to uncertainty over the impact of U.S. tariffs on Japan’s economy, a summary of opinions at the bank’s June policy meeting showed on Wednesday.
The Bank of Japan may need to raise interest rates “decisively” to address inflation risks even if uncertainties over U.S. tariffs persist, a hawkish member of its board said, highlighting the bank’s attention to growing price pressures.
In cryptocurrencies, bitcoin gained 1.89 per cent to $108,155.
