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Investing.com – The US dollar fell in early European trade on Wednesday, giving up some of the previous session’s gains as traders cautiously await the release of the Federal Reserve’s February meeting minutes.
The dollar index rose above 104 levels yesterday, after a resounding decline in the US markets, after increasing fears that the US interest rate peak would reach 5.50% or higher.
The US dollar index is now recording 104.273 points against a basket of six foreign currencies. While the yields of US Treasury bonds reached their highest level since 2022, as they recorded 3.951%, and the yields of two-year Treasury bonds reached 4.6891.
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The reason for the rise of the dollar
The dollar rebounded on Tuesday after data indicated business activity unexpectedly picked up in February to reach an eight-month high, adding to recent figures showing that US retail sales remained strong and the labor market remained constrained. while inflation remained high.
Also, yields rose as the strength of the world’s largest economy helped provide more room for the Federal Reserve to raise .
Consequently, the markets have raised their expectations on the extent to which the Fed will need to raise interest rates to tame inflation, and the markets will now focus on the last meeting of the Federal Reserve, scheduled for later in this session, to search for more clues about the thinking of the policy makers.
“The main event on the Fed front this week, the FOMC meeting minutes, may not match the hawkish tone we heard after the strong jobs and inflation data released after the meeting,” ING analysts said in a note.
Dollar and other currencies
Elsewhere, it rose 0.1% to 1.0657, after data released earlier on Wednesday showed that inflation remained at a high level in Germany, the most important economy in the eurozone.
Also, in Germany, which is comparable to other EU countries, it rose 9.2% year-on-year in January, with prices rising throughout the month.
This increases the pressure on them to continue raising interest rates in an effort to tame inflation.
Goldman Sachs said, in a note earlier this week, that it expects the European Central Bank to raise interest rates three times this year – in March, May and June – bringing the final interest rate to 3.5%, up from 3.25% previously.
It rose to 1.2120, with the pound extending its gains on Tuesday after reaching 53.0 this month, above the 50 threshold for growth for the first time since July.
While it fell 0.2% to 134.69, with the yen trying to breach its recent losses ahead of a widely awaited speech by Bank of Japan governor nominee Kazuo Ueda, which could provide more future plans for the central bank.
It rose 0.4% to 0.6238 after earlier on Wednesday raised interest rates by 50 basis points to 4.75%, the highest level since late 2008, and expects further increases as inflation continues to rise.
