Dollar dips before expected Fed hike and possible pause

NEW YORK: The dollar fell on Wednesday before the Federal Reserve is expected to hike rates for possibly the last time this cycle, which could lead to further dollar declines.

Investors are concerned that continued rate hikes will weigh on the economy, and fed funds futures traders are pricing in rate cuts in the second half of the year on a possible recession.

A 25 basis points increase on Wednesday will place the fed funds rates between 5% and 5.25%, and Fed officials have previously said 5.1% was their year-end target, Trevisani said, adding that inflation has also eased and is likely to continue to decline while economic concerns also warrant a pause.

Data on Tuesday showed US job openings fell for a third straight month in March and layoffs reached their highest in over two years, which suggested a slowing labor market could speed up the Fed’s fight against inflation.

The dollar briefly bounced after data on Wednesday showed that US private employers boosted hiring in April amid strong demand for workers in the leisure and hospitality industry, though wage growth slowed.

The dollar index, which measures the US currency against six others, fell 0.34% to 101.50. It has weakened against the euro in recent months as investors adjust for a smaller interest rate advantage over the single currency and it hit a one-year low of 100.78 on April 14.

The euro was last up 0.37% at $1.1040. The European Central Bank on Thursday is expected to hike rates by 25 basis points, with a 50 basis points increase also possible but seen as a low probability. The dollar fell 0.90% against the Japanese yen to 135.32.