By Gertrude Chavez-Dreyfuss
NEW YORK (Reuters) – The dollar fell on Friday after Federal Reserve Chair Jerome Powell struck a moderately dovish stance, contrary to market expectations, saying that given how credit condition have tightened, the U.S. central bank may not need raise interest rates as much.
Tighter credit conditions mean that “our policy rate may not need to rise as much as it would have otherwise to achieve our goals,” Powell said at a central bank conference in Washington.
“Powell was not overtly dovish, but he definitely was not hawkish,” said Erik Bregar, director, FX & precious metals risk management, at Silver Gold Bull in Toronto.
“So you’re seeing bond market cover hawkish bets, same thing with FX. This derails upside momentum in the dollar going into the weekend.”
Fed officials this week have more or less pushed against rate-pause bets for June given persistently high inflation.
Following Powell’s comments, the rate futures market has priced in a roughly 21% chance that the Fed raises the benchmark rate at its June meeting by 25 basis points, with the majority of traders factoring in a pause. The rate-hike bet was nearly 40% before the Fed chairman spoke.
The dollar index fell 0.24% to 103.08, after hitting seven-week peaks the previous session. On the week, the dollar posted a 0.6% gain.
The dollar slid 0.7% against the yen to 137.76 yen, having risen to a six-month peak of 138.745 earlier.
At the same time, negotiations between U.S. House of Representatives Republicans and Democratic President Joe Biden’s administration about lifting the federal government’s $31.4 trillion debt ceiling have been paused, the lead Republican negotiator said while the White House said a deal remains possible.
“Until people are willing to have difficult conversations about how you can actually move forward and do the right thing we’re not going to sit here and talk,” Representative Garret Graves, House Speaker Kevin McCarthy’s designated lead negotiator in talks, told reporters as he walked out of talks on Friday.
The news undermined the dollar.
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Currency bid prices at 12:20PM (1620 GMT)
Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid
Previous Change
Session
Dollar index 103.1200 103.5000 -0.35% -0.358% +103.6200 +102.9900
Euro/Dollar $1.0812 $1.0771 +0.40% +0.92% +$1.0827 +$1.0760
Dollar/Yen 137.8700 138.7150 -0.65% +5.11% +138.7000 +137.4350
Euro/Yen 149.07 149.37 -0.20% +6.25% +149.7900 +148.7300
Dollar/Swiss 0.8996 0.9052 -0.63% -2.73% +0.9058 +0.8976
Sterling/Dollar $1.2456 $1.2409 +0.39% +3.01% +$1.2483 +$1.2393
Dollar/Canadian 1.3517 1.3502 +0.11% -0.24% +1.3523 +1.3469
Aussie/Dollar $0.6657 $0.6622 +0.54% -2.33% +$0.6675 +$0.6618
Euro/Swiss 0.9724 0.9747 -0.24% -1.73% +0.9751 +0.9714
Euro/Sterling 0.8678 0.8678 +0.00% -1.88% +0.8696 +0.8669
NZ $0.6282 $0.6225 +0.93% -1.05% +$0.6305 +$0.6224
Dollar/Dollar
Dollar/Norway 10.8580 10.9200 -0.54% +10.67% +10.9380 +10.8190
Euro/Norway 11.7405 11.7474 -0.06% +11.88% +11.7781 +11.6800
Dollar/Sweden 10.5172 10.5512 -0.11% +1.05% +10.5822 +10.5059
Euro/Sweden 11.3640 11.3768 -0.11% +1.92% +11.3948 +11.3487
(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Amanda Cooper in London and Rae Wee in Singapore; Editing by Kim Coghill, Kirsten Donovan and Daniel Wallis)
