Dollar parries gains as odds of 100bp cut from Fed rate hike

NEW YORK, July 14 (Reuters) – The dollar pared gains on Thursday after two Federal Reserve officials indicated they favored a 75 basis point hike at the U.S. central bank’s July meeting , thus reducing the chances of a more aggressive decision.

Traders stepped up bets that the Fed will hike rates even faster after data on Wednesday showed annual U.S. consumer prices jumped 9.1% in June, the strongest increase in more than four decades. Read more

However, the odds of a 100 basis point move dipped after Fed Governor Christopher Waller said he backed another 75 basis point hike in interest rates at the Fed meeting. general central bank policy later this month, but that it would tilt for a bigger hike if new data shows demand. not slowing fast enough to reduce inflation. Read more

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St. Louis Fed President James Bullard also said he would prefer to raise interest rates 75 basis points at the July 26-27 central bank meeting.

Fed funds futures now point to a 31% chance of a 100 basis point hike, down from around 70% previously, and a 69% chance of a 75 basis point hike.

The dollar index was last at 108.50, up 0.22% on the day, after jumping to 109.29, the highest since September 2002.

The euro fell to $1.0031, after falling to 99.52 US cents, the lowest since December 2002.

The greenback should continue to appreciate as it benefits from higher rate hike prospects than other global central banks, including the European Central Bank.

“Europe is going to have a harder time and you’re probably going to see the Fed going to get very aggressive, and the interest rate differential going to get very powerful throughout next year,” said Edward Moya, senior market analyst at OANDA in New York.

Trading was volatile on Thursday as the euro hit a 20-year low after a party in Italian Prime Minister Mario Draghi’s coalition government failed to back a parliamentary confidence vote that included measures to offset the cost of living crisis. Draghi then resigned. Read more

The dollar also jumped to a 24-year high against the yen as Japan’s central bank maintains a dovish stance that contrasts with hawkish moves by other central banks.

“There is clearly a broader preference for the dollar in the markets at the moment given the broader context of current geopolitical uncertainty, pressures in Europe from the energy supply situation and expectations of rate hikes. of interest in the United States,” said Shaun Osborne, head of FX. strategist at Scotiabank.

The Canadian dollar fell a day after the Bank of Canada raised its benchmark interest rate by one percentage point, its biggest rise since 1998. read more

The loonie could also be weaker as aggressive rate hikes fuel fears of an economic slowdown, Osborne said.

“Investors are concerned that the Bank of Canada is potentially moving too fast, too quickly, a policy error is believed to be made here with a 100 basis point hike given the vulnerabilities in the housing sector,” said Osborne.

The greenback gained 0.98% against the loonie at C$1.3102. It had previously reached C$1.3224, the highest since November 2020.

The Australian dollar fell on concerns over global growth to 66.825 US cents, the lowest since May 2020.

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Bid rates for currencies at 3:00 p.m. (1900 GMT)

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Reporting by Karen Brettell; edited by Jonathan Oatis and Richard Chang

Our standards: The Thomson Reuters Trust Principles.

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