US dollar holds gains ahead of Fed minutes

LONDON: The dollar held onto gains against other major currencies on Wednesday, ahead of the release of minutes of the US Federal Reserve’s July meeting that could give further clues about the pace of further interest rate hikes.

The greenback has recovered the ground it lost since softer-than-expected inflation data last week led to investor bets that price rises may have peaked, weakening the dollar.

“The question is whether the Fed wants to use these minutes as a communication tool to push back against the view of a 2023 easing cycle,” ING currency analysts said in a note.

Several Fed officials have signalled over the past week that the central bank will still act decisively to combat inflation, helping lift the dollar back up.

US retail sales data due later on Wednesday will also be watched closely as an indicator of the economy’s resilience. The dollar index was last broadly flat on the day at 106.510.

It has recovered by around 2% since last week’s post-inflation data low, but remains more than 2% off the two-decade high of 109.29 hit in mid-July.

The euro was also broadly unchanged versus the dollar at $1.01785, ahead of the final reading for euro zone GDP in the second quarter due later on Wednesday, after preliminary data showed faster than expected growth despite the deteriorating outlook.

Sterling gained 0.2% to $1.21155, after official data showing British consumer price inflation jumped to 10.1% in July - the highest since February 1982.

The New Zealand dollar jumped as much as 0.6% after the country’s central bank announced a fourth consecutive 50 basis point rate hike to 3.00% without giving hints of slowing down.

Dollar firm vs Aussie, euro on heightened recession worries

But the kiwi dollar later reversed course and was last down 0.4% on the day at $0.63210.

“It (the RBNZ’s remarks) were marginally on the hawkish side, enough to keep the pressure on rates,” said Jason Wong, senior market strategist at BNZ. The Aussie dollar fell 0.7% to $0.69750, after wage data showed growth slightly below expectations and well behind inflation.

The US dollar gained 0.4% versus the yen to 134,785, after data showed Japan’s trade gap widened after a record surge in imports in July.