Dollar rebounds ahead of US unemployment claims data

Dollar rose in European trade on Thursday against a basket of major rivals, resuming gains after a short hiatus yesterday following a somewhat bearish policy meeting by the Federal Reserve. 

Dollar’s gains today remain limited as US 10-year treasury yields lose ground, while investors await more clues on the future of US monetary policies. 

Investors are particularly waiting for the US payrolls report tomorrow, which is a crucial piece of information that would help determine the course of interest rates in the summer.

The Index

The dollar index rose 0.2% to 105.85 today, with a session-low at 105.55, after closing down 0.65% on Wednesday away from a two-week high at 106.49. 

The dollar lost ground after the Federal Reserve’s policy meeting this week, which came out as less aggressive than expected.

US Yields 

US 10-year treasury yields fell by 0.8% on Thursday, extending losses for the second session and almost touching multi-week lows, in turn heaving pressure on the dollar.

The Fed 

The Federal Reserve announced its decision to maintain interest rates unchanged between 5.25% and 5.5% for the sixth straight meeting.

The Fed’s policy statement indicates it doesn’t expect to perform any rate cuts until there’s enough confidence that inflation is moving sustainably towards 2%.

Powell

Fed Chair Jerome Powell said in his press conference on Wednesday that the Fed expects policies to remain restrictive for sometime in order for inflation to hit the 2% target. 

He added that he doesn’t expect the next policy step to be a rate hike, however he doesn’t expect a rate cut until inflation is reliably heading towards 2%. 

He asserted that inflation readings so far this year weren’t encouraging, and it could take longer than expected. 

US Rates

Following the meeting, the odds of a Fed interest rate cut in June fell to 5%, while the odds of a July interest rate cut fell to 25%. 

Investors now barely price in just a single rate cut this year. 

Unemployment Claims 

Investors await important US unemployment claims data later today, expected to have risen to 212 thousand last week from 207 thousand in the previous reading.