Dollar Rises Despite Fed's Rate Cut Hints

(RTTNews) - Anxiety ahead of the monetary policy decisions by the Bank of Japan, Reserve Bank of Australia, Federal Reserve, Bank of England and a slew of other central banks due during the week set the context for the currency market movements during the week ended March 22. Amidst mixed monetary policy responses, the U.S. Dollar strengthened against the euro, British pound, the Australian Dollar as well as the Japanese Yen.

The week witnessed major monetary policy divergence with Bank of Japan's rate hike coupled with an accommodative stance, Federal Reserve's status quo backed by firm rate cut hints and both Reserve Bank of Australia as well as Bank of England delivering dovish pauses.

The Dollar Index or DXY, a measure of the Dollar's strength against a basket of 6 currencies, gained close to a percent during the week ended March 22.

The Federal Reserve, in its review on Wednesday, had acknowledged that the risks to achieving its employment and inflation goals were moving into better balance and decided to maintain the target range for the Federal funds rate at 5.25 to 5.5 percent and also hinted at three rate cuts in 2024. Amidst renewed rate cut expectations, the DXY finished Wednesday's trading at 103.24 and also touched a low of 103.17 on Thursday. However, a surprise rate cut by the Swiss National Bank on Thursday bolstered the Dollar's appeal as a high-yielding and low-risk currency. The DXY changed course and touched a weekly high of 104.50 on Friday. The DXY eventually closed at 104.43 on March 22, versus 103.43 a week earlier. The EUR/USD pair slipped around 0.75 percent during the week ended March 22 amidst market perception that the ECB would cut rates faster than the Fed. Though the euro had climbed to $1.0943 on Thursday, it declined all the way to a weekly low of $1.0802 by Friday amidst the Dollar's rebound that followed the rate cut by Swiss National Bank. The pair eventually closed at 1.0805 on March 22, versus 1.0887 a week earlier.

The sterling too shed more than a percent during the week ended March 22 amidst dovish commentary from Bank of England and Governor Andrew Bailey acknowledging the decline in inflation. Though sterling touched a weekly high of $1.2805 on policy day, it tumbled to $1.2574 on Friday, which happened to be the week's low. The pair closed at 1.2601 which is 1.08 percent below the previous week's close of 1.2739.

The Aussie too lost against the U.S. Dollar during the week ended March 22 amidst a widely expected pause by the Reserve Bank of Australia and a monetary policy stance that was less hawkish than expected. The AUD/USD pair dropped to 0.6514, from 0.6560 a week earlier, recording a weekly loss of 0.70 percent. The week's trading range was between 0.6636 and 0.6503.

The USD/JPY pair jumped 1.61 percent during the week ended March 22 despite the Fed's firm hints of rate cuts and Bank of Japan's shift from a negative interest rate regime to neutral territory. Though BoJ signaled an end to its yield curve control and asset purchase policies, the continuation of an accommodative stance overshadowed the policy pivot that hurt the yen and caused the pair to close at 151.42, versus 149.02 a week earlier. The pair had traded between 151.88 and 148.90 during the week.

The PCE-based inflation readings for February are due on Friday. Fed Chair Jerome Powell is also scheduled to speak on the same day. Nevertheless, the greenback has retreated, dragging the Dollar Index to 104.22. Amidst the Dollar's weakness, the EUR/USD pair has increased to 1.0837 whereas the GBP/USD pair has risen to 1.2645. The AUD/USD pair has also increased to 0.6542. Amidst the threat of government intervention in the yen, the USD/JPY pair has decreased to 151.24.