Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Dollar dips after Fed rally, Bitcoin slumps

Published 21/06/2021, 01:31
Updated 21/06/2021, 20:55
© Reuters. FILE PHOTO: U.S. one dollar banknotes are seen in front of displayed stock graph in this illustration taken February 8, 2021. REUTERS/Dado Ruvic/Illustration/File Photo

© Reuters. FILE PHOTO: U.S. one dollar banknotes are seen in front of displayed stock graph in this illustration taken February 8, 2021. REUTERS/Dado Ruvic/Illustration/File Photo

By Karen Brettell

NEW YORK (Reuters) - The dollar retreated from two-month highs on Monday as investors evaluated whether a perceived hawkish tilt by the Federal Reserve last week will mark a pause in the dollar bear trend that has been in play since March 2020.

The dollar has surged since the U.S. central bank on Wednesday said that policymakers are forecasting two rate hikes in 2023. That led investors to re-evaluate bets that the U.S. central bank will let inflation run at higher levels for a longer time before hiking rates.

The greenback dropped on Monday but held above where it traded before the Fed's statement on Wednesday.

"There was a rush to clean out outstanding positions that were a little bit maybe too skewed towards dollar shorts," said Bipan Rai, North American head of FX strategy at CIBC Capital Markets in Toronto. Now, "the market's trying to catch its breath a little bit before it really decides whether or not to extrapolate this trend towards a stronger dollar."

The dollar had weakened on expectations that the Fed will hold rates near zero for years to come even as the economy rebounds from COVID-19 pandemic-related shutdowns.

Two regional Federal Reserve officials said on Monday that a faster withdrawal from the central bank's bond purchase program could give it more leeway in deciding when to raise interest rates.

New York Fed President John Williams (NYSE:WMB) also said that more progress is needed before the Fed should begin to scale back some of its economic support.

Comments by Fed Chair Jerome Powell will be in focus on Tuesday to see if he confirms the hawkish outlook or tries to row back market expectations of faster tightening.

Powell said last week there had been initial discussions about when to pull back on the Fed's $120 billion in monthly bond purchases, a conversation that would be completed in coming months as the economy continues to heal.

The dollar index against a basket of currencies fell 0.44% on the day to 91.849. The euro gained 0.41% to $1.1917 and the greenback gained 0.03% to 110.29 Japanese yen.

The British pound gained 1.03% to $1.3933.

Some analysts say the recent market moves have been exaggerated by investors unwinding crowded trades, and that the dollar still faces weakening pressures as the global economy recovers.

"The core thesis underpinning our USD weakness view has not changed drastically," Wells Fargo (NYSE:WFC) analysts said on Monday in a report.

"For one, the global economic recovery is still gathering pace and broadening in scope. Moreover, while the Fed's dots sent a hawkish signal, Chair Powell continued to talk down the risks of a near-term taper. In any case the Fed still looks likely to lag many of its G10 peers in reducing accommodation," they said.

Producer price inflation data on Friday will also be in focus for any signals that price pressures may stay higher for longer, which could prompt sooner-than-expected Fed tightening.

"If inflation data comes in a little bit firmer than expected, or is a little bit stickier than expected, then that could portend to more aggressive timelines for the Fed to remove accommodation," Rai said.

© Reuters. FILE PHOTO: U.S. one dollar banknotes are seen in front of displayed stock graph in this illustration taken February 8, 2021. REUTERS/Dado Ruvic/Illustration/File Photo

In cryptocurrencies, bitcoin's poor recent run continued with a 8.89% drop to $32,390, as China expanded restrictions on mining to the province of Sichuan.

Cryptomining in China accounts for more than half of global bitcoin production.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.