The dollar maintained its firm position on Tuesday, with the yen struggling on the weaker side of the 156 level. Despite this, trade remained mostly rangebound as investors stuck to their views on the expected timing and extent of Federal Reserve rate cuts this year. Against the yen, the dollar saw a 0.11% rise to 156.41 in Asia. The yen has been trading in a tight range over the past few sessions, with fears of further intervention from Japanese authorities serving as a deterrent for traders looking to push the currency to new lows. However, the significant interest rate differentials between the U.S. and Japan continue to support the appeal of the yen as a funding currency.
Elsewhere in the market, the euro edged 0.02% higher to $1.0859, while sterling similarly tacked on 0.04% to $1.27115. With minimal economic data on the U.S. calendar this week to guide currency movements, investors are focusing on a slew of Fed speakers for clues on the U.S. rate outlook. Despite a welcome easing in consumer price pressures in April, several officials have called for continued policy caution. Currency strategist at Commonwealth Bank of Australia, Carol Kong, believes that the main message from officials will continue to advocate for a patient approach to interest rate cuts.
Despite cautious rhetoric from the Fed, market pricing for rate cuts has remained relatively unchanged, with investors currently anticipating two cuts this year beginning in September. The dollar steadied at 104.62 against a basket of currencies, while the New Zealand dollar fell 0.09% to $0.61005 and the Australian dollar slipped 0.14% to $0.6658. Minutes from the Reserve Bank of Australia’s May meeting indicated that the central bank opted to keep interest rates steady to avoid excessively fine-tuning policy, but suggested that a hike may be necessary if inflation forecasts prove to be too optimistic.
In the cryptoverse, ether saw a significant jump of more than 5% to reach an over one-month high of $3,720.80, following a nearly 14% surge in the previous session – marking its largest daily percentage gain since November 2022. Bitcoin also broke above the $70,000 level and was trading 2% higher at $70,980. Analysts attribute the recent rally in cryptocurrencies to speculation surrounding the imminent approval of spot ether exchange-traded funds by the U.S. Securities and Exchange Commission. This anticipation follows the listing of bitcoin ETFs earlier in the year. Market analyst at IG, Tony Sycamore, commented on the surge, noting that it may be linked to speculation and recent core inflation data boosting risk sentiment and bringing rate cuts back into play.
Overall, the market remains cautiously optimistic about the dollar’s strength and the potential for further rate cuts in the U.S. Currency movements are expected to be driven by upcoming Fed communications and any developments in the cryptocurrency sector.