NEW YORK: The dollar gained for a third day on Wednesday as it continued to recover from a sharp selloff last week on rising confidence that the Federal Reserve has ended its interest rate hiking cycle.
Traders also remained on alert for potential intervention in the Japanese yen as it holds above the 150 level against the dollar.
Many economists and analysts expect the US economy to slow in the fourth quarter, which makes further rate hikes less likely and will dent the appeal of the greenback, which has benefited from the relative strength of the United States compared to other major economies.
“The dollar is vulnerable to weaker data going forward,” said Shaun Osborne, chief foreign exchange strategist at Scotiabank in Toronto. “We’re transitioning to a sort of sell dollar rallies environment, after the buy dollar dips trend that we’ve seen really since the middle of the year.”
That said, the dollar may continue to gain in the short-term as it recovers from last week’s selloff, which was viewed by some as overdone.
“Essentially it’s a period of consolidation for the US dollar generally... That probably will continue for a little bit longer,” said Osborne.
The greenback suffered after Fed Chair Jerome Powell was interpreted as striking a dovish tone at the conclusion of the Fed’s two-day meeting last Wednesday, when it left interest rates unchanged.
Powell did not comment on monetary policy in a speech on Wednesday. He is also due to speak on Thursday.
Futures point to a roughly 17% chance of another hike by January, but are pricing in a 20% chance that rate cuts could come as early as March, according to the CME FedWatch tool.
The dollar index was last up 0.10% at 105.63. It fell 1.4% last week, its steepest weekly decline since mid-July.
Weaker-than-expected jobs data for October on Friday added to last week’s selloff. The next major US economic releases will be consumer price inflation and retail sales data due next week.
The euro fell 0.11% to $1.0687.
The single currency was hurt by data on Wednesday showing that retail sales in September fell 0.3% month-on-month in the bloc.
“The mixed outlook for consumer and investment spending leaves the euro zone very close to recession,” said Wells Fargo Economist Nick Bennenbroek.
The Japanese yen stayed on the weaker side of 150 per dollar, heading back towards levels that have investors on watch for currency intervention.
“It’s clear we are back in the intervention space,” said ING FX strategist Francesco Pesole.
The dollar was last up 0.30% at 150.86 yen.
The British pound, which earlier in the week hit a seven-week top against the dollar above $1.24, was last down 0.17% at $1.2276.
The Australian dollar fell another 0.17% to $0.6424, having slid 0.8% in the previous session - its largest daily decline in about a month.
The Reserve Bank of Australia (RBA) on Tuesday raised interest rates to a 12-year high, ending four months of steady policy, but watered down its tightening bias to make it more conditional on incoming data.