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In Singapore (Reuters) – The dollar dropped widely on Wednesday, aided by a decrease in U.S. Treasury yields on cautious remarks from the Federal Reserve, as traders searched to the central bank for indications on the interest rate perspective later during the day. Glimpsed towards the policy meeting.
Several Fed officials have recently indicated that the US central bank does not need to tighten monetary policy any more than initially envisaged.
Raphael Bostic, President of the Atlanta Fed Bank stated on Tuesday that the central bank does not need to raise borrowing costs any further, and later in the day, Neel Kashkari, President of the Minneapolis Fed, offered similar remarks.
The remarks drove the greenback to a two-week low against a collection of currencies in the previous session, with the dollar index near that level in early Asia trading. It last stood at 105.66.
Sterling reached a three-week peak of $1.2296, while the euro last bought $1.0606, not far from Tuesday’s highest level in more than two weeks of $1.0620.
“The Fed is moving away from further rate hikes, and its tightening bias could also be removed by December,” stated Thierry Weizmann, global FX and interest rates strategist at Macquarie.
US Treasury yields have similarly decreased after the dovish comments from the Fed, with two-year yields, which typically reflect near-term rate expectations, hitting a low of 4.9260% on Tuesday for the first time in a month. It was last at 4.9675%.
The benchmark 10-year yield was at 4.6468%. [US/]
Attention now shifts to the minutes of the Fed’s September policy meeting, set to be released on Wednesday, which could offer additional indications on its interest rate perspective. US inflation data is expected to be released the following day.
“I believe markets will be particularly interested in whether the (Federal Open Market Committee) will follow through on (its) forecast of an additional 25-basis-point hike in its latest dot plot,” stated Carol Kong, currency strategist at Commonwealth. No.” Bank of Australia (CBA).
“While any remarks are viewed as somewhat cautious, I think yields could continue to decline and that could exert further pressure on the US dollar.”
The Australian dollar rose to a nearly one-week high of $0.6440, while the New Zealand dollar reached a two-month high of $0.6050, aided slightly by a report that China is contemplating new stimulus measures.
The two antipodean currencies are often employed as liquid substitutes for the yuan.
China is considering augmenting its budget deficit for 2023 as the government prepares to unveil a new round of stimulus to aid the economy in achieving Beijing’s annual growth target, as reported by Bloomberg News on Tuesday.
“Markets are still fairly cautious regarding whether the government will introduce a significant stimulus, as they were unwilling to implement any substantial stimulus last year. So, I believe the markets are somewhat unsure about the authenticity of the report,” he stated. CBA’s Kong.
“If that report is true and Chinese officials unveil a major stimulus package, that will clearly enhance the (yuan) and currencies linked to the Chinese economy.”
The offshore yuan, which touched a nearly one-month high of 7.2700 per dollar on Tuesday, was last purchased at 7.2839.
(Reporting by Rae Wei; Editing by Jamie Freed)