Dollar dips after Fed rally, Bitcoin slumps

  • Graphic: World Currency Rates https://tmsnrt.rs/2RBWI5E

NEW YORK, June 21 (Reuters) – The dollar fell from its two-month high on Monday as investors continued to assess whether a perceived restrictive bias by the Federal Reserve last week would pause the bearish dollar trend that has been at play since then March 2020.

The dollar has risen since the Federal Reserve said Wednesday that policymakers were forecasting two rate hikes in 2023. This has led investors to rethink their bets that the US Federal Reserve will let inflation run higher for longer before raising rates.

The greenback fell on Monday but remained above where it was trading prior to the Fed’s statement on Wednesday.

“There was a rush to move out outstanding positions that may have been a little too focused on dollar shorts,” said Bipan Rai, North America head of FX strategy at CIBC Capital Markets in Toronto. Now “the market is trying to catch its breath a little before actually deciding whether or not to extrapolate this trend towards a stronger dollar”.

The dollar has weakened on expectations that the Fed will keep rates near zero for the years to come, even as the economy recovers from the COVID-19-related shutdowns.

Market participants will be watching speeches from Fed members this week, including comments from Fed Chairman Jerome Powell on Tuesday, to see if they confirm the restrictive outlook or try to lower market expectations of tightening.

The dollar index versus a basket of currencies last lost 0.26% on the day at 92.013. The euro gained 0.27% to $ 1.1901 and the greenback gained 0.05% to 110.30 Japanese yen.

The British pound gained 0.69% to $ 1.3885.

Some analysts say recent market moves have been exaggerated because investors were busy trading overcrowded trades and that the dollar is still facing weaker pressure as the global economy recovers.

“The core thesis that underlies our assessment of USD weakness has not changed drastically,” Wells Fargo analysts said in a report on Monday.

“For one thing, the global economic recovery is still picking up speed and expanding. While the Fed’s issues sent a restrictive signal, Chairman Powell continued to downplay the risks of a short-term tightening. In any case, the Fed will likely still lag behind many of its G10 peers in breaking down accommodation, ”they said.

Powell said last week there had been initial discussions about when the Fed’s $ 120 billion monthly bond purchases should be withdrawn, a conversation that would conclude in the coming months as the economy continues to recover. Continue reading

Friday’s producer price inflation data will also be in focus if signals suggest that price pressures may last longer, which could lead to an earlier than expected Fed tightening.

“If inflation data is a little firmer than expected or a little sticky than expected, it could indicate more aggressive schedules for the Fed to lift the adjustments,” Rai said.

In cryptocurrencies, Bitcoin’s poor recent run continued, declining 7.40% to $ 32,964 as China extended mining restrictions to Sichuan Province. Continue reading

Cryptomining in China accounts for more than half of global bitcoin production.

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Currency bid prices at 9:51 a.m. (1351 GMT)

Reporting by Karen Brettell; additional coverage from Iain Withers in London; Adaptation by Jonathan Oatis

Our standards: The Thomson Reuters Trust Principles.

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