LONDON, Feb 21 (Reuters) – The dollar flattened on
Wednesday as traders awaited minutes of the Federal Reserve’s
latest policy meeting for further clues on the central bank’s
rate outlook, while sterling shrugged off Britain’s highest ever
monthly budget surplus in January.
Data last week showed sticky U.S. inflation, prompting
investors to push back bets the Fed would start cutting rates in
March. Markets are now pricing in the first cut in June,
compared with March at the start of the year.
Traders are now pricing in 95 basis points (bps) worth
of easing by the Fed this year.
A slim majority of economists polled by Reuters expects
the Fed to cut interest rates in June.
The minutes of the Fed’s latest policy meeting due later
in the day will provide further clarity on the outlook for U.S.
rates.
Fiona Cincotta, Senior Financial Market Analyst at City
Index, said investors will be closely watching the Fed’s minutes
for clues over the timing of the first rate cut.
“Since the FOMC (Federal Open Marekt Committee) meeting,
Fed Jerome Powell and Fed policymakers have been pushing back on
rate cut expectations, particularly given last week’s
hotter-than-expected inflation data.
“Currently, the market is expecting the Fed to start
cutting rates in June. Hawkish minutes could see this pushed
back further, which could lift the U.S. dollar.”
The U.S. dollar index, measuring the currency against
six peers, flattened at 104.05, after moving 0.25% lower on
Tuesday on the back of a dip in global bond yields.
RECORD SURPLUS
Elsewhere, sterling flattened at $1.2625 after
figures showed Britain chalked up its highest ever monthly
budget surplus in January ahead of finance minister Jeremy
Hunt’s annual budget in March.
“The ‘record’ surplus does not mean that the UK is
firing on all cylinders and generating cash significantly faster
than before. The surplus was lower than expected,” said Kathleen
Brooks, research director XTB.
“Economic growth is still likely to remain sluggish, so
today’s data is unlikely to factor into the BOE’s decision on
when to cut rates”.
A potential tax cut next month may not lead to much
extra consumption and should not move the dial for the BOE, she
added.
Sterling was some distance away from Tuesday’s one-week
high of $1.2668, having retreated from that level after comments
from Bank of England Governor Andrew Bailey.
Bailey said on Tuesday he was comfortable with investors
betting on interest rate cuts this year, but pointed to signs
that Britain’s economy was picking up after falling into
recession in late 2023.
The euro also flattened at $1.0808, ahead of an
euro zone consumer confidence survey due later in the day.
Chris Turner, global head of markets at ING, said a mild
improvement in the February numbers is expected.
“If there is a ray of light for the euro zone economy it
may be that
wage growth
is not falling as quickly as inflation”.
The Chinese yuan rebounded to a near three-week
high, helped by some bounceback in its battered equity markets.
It last stood at 7.1910 per dollar.
Its offshore counterpart rose to a three-week high,
and was last up 0.05% at 7.1980 per dollar.
China on Tuesday announced its biggest cut in its benchmark
mortgage rate to help prop up a struggling property market and
the broader economy, though the move failed to draw much
investor excitement as experts said more needs to be done.
(Reporting by Joice Alves in London, additional reporting by
Rae Wee in Singapore; Editing by Bernadette Baum and Chizu
Nomiyama)
