NEW YORK: The dollar was broadly lower on Tuesday after the announcement of a ceasefire between Israel and Iran and as Federal Reserve Chair Jerome Powell testifies before US Congress. The euro and yen gained as oil prices tumbled. The European Union and Japan rely heavily on imports of oil and liquefied natural gas, while the US is a net exporter.
Risk sensitive assets including the Australian dollar also gained as the announcement boosted risk sentiment.
The greenback was also dented after dovish comments from Fed policymakers in recent days, before Powell’s testimony.
“Geopolitics and the Fed are sort of competing for the market’s attention,” said Vassili Serebriakov, an FX strategist at UBS in New York.
The US currency gained early on Monday on concerns that the US bombing of some Iran nuclear sites will escalate the conflict. However, Serebriakov notes that “even when geopolitical tensions were high, the dollar was strengthening only moderately.”
Uncertainty over the geopolitical situation also remained on Tuesday as explosions rang out in Tehran from Israeli airstrikes despite the announced ceasefire. The dollar dropped sharply after Fed Vice Chair for Supervision Michelle Bowman said Monday the time to cut interest rates appears imminent as she is growing more worried about labor market risks and less concerned high import taxes will cause an ongoing inflation problem.
It followed comments from Fed Governor Christopher Waller on Friday that the Fed should consider cutting interest rates at its next meeting given recent tame inflation data and the fact that any price shock from import tariffs will be short-lived.
The comments have “sharpened the focus on Chair Powell’s remarks today,” Serebriakov said. The dollar has weakened even as it benefits from higher rates than peers including the Japanese yen and faster than expected interest rate cuts would likely send the dollar lower still, he said.
The dollar index was last down 0.11% at 98.13, while the euro gained 0.1% to $1.1588. The Japanese yen strengthened 0.72% against the greenback to 145.13 per dollar. Powell said in prepared statements on Tuesday the central bank needs more time to see if rising tariffs drive inflation higher before considering the interest rate cuts that President Donald Trump is demanding. US President Donald Trump said on Tuesday that interest rates in the country should be lowered by at least two to three percentage points.
Fed funds futures traders are now pricing in 55 basis points of cuts this year, up from around 46 basis points before Waller’s comments on Friday. That indicates expectations that two 25-basis-points in cuts are certain, with a rising chance of a third reduction.
A cut at the Fed’s July 29-30 meeting continues to be seen as very unlikely, with the first cut expected in September.
In cryptocurrencies, bitcoin gained 1.37% to $105,221.
Comments
Comments are closed for this article.