The US dollar could continue to find support as traders’ expectations of higher interest rates were reinforced by the release of the Federal Reserve’s minutes yesterday.
Fed members have also pointed to resilient business conditions and a solid job market that could support new interest rate hikes and a stronger dollar over the longer term.
Over the short term, traders could remain cautious before several data releases, in particular regarding the US job market.
Denys Peleshok, Head of Asia at CPT Markets said, “As a result, the dollar could see some volatility during the remainder of the week as traders integrate the new data into their outlook. In the meantime, yields on US treasuries could continue to rise ahead of the Federal Reserve’s meeting later this month.
“The dollar continued to see some potential against the euro. However, the pair could continue to see some volatility as both the European and American central banks continue to push a hawkish agenda.
“The European Central Bank has kept raising rates non-stop and could maintain the same pace to try to pull inflation down, which remains more elevated than in the US.
Traders have reacted to a stronger-than-expected increase in German factory orders.
“The data provided some support to the euro. However, traders’ attention could remain directed toward the US currency.
“However, the dollar continued its decline against the Japanese yen as the threat of intervention from the Bank of Japan could weigh on expectations.
While the large differential in interest rates has been detrimental to the yen, the risks of intervention could affect this trend in its favor.