Dollar rises amid declining hopes for an early cut in interest rates

The dollar remained near its highest levels in four and a half months against major currencies on Tuesday amid diminishing expectations for the timing of the first interest rate cut by the Federal Reserve (US central bank) this year.

While the dollar reached its highest levels in six weeks against the euro and was on the verge of achieving the same against the British pound, bets on Japanese authorities’ intervention limited the dollar’s gains against the yen, despite the increase in long-term US Treasury bond yields to their highest level in two weeks on Monday night.

According to CME’s Fed Watch tool, the US interest rate futures market is pricing in a 61.3 percent probability of a rate cut in June, down from approximately 70.1 percent a week ago.

Richard Franulovich, head of currency strategy at Westpac, commented on the dollar index: “The contrast between strong US growth dynamics and diminishing prospects of a Fed rate cut versus sluggish growth in other major foreign currencies suggests that any dips in the dollar index should be seen as… buying opportunities.”

The dollar index, which measures the currency’s performance against a basket of six major currencies, rose 0.05 percent to 105.05, after earlier reaching 105.07, matching Monday’s highest level.

The euro declined 0.08 percent to $1.07335, after touching $1.07295. The British pound slipped 0.04 percent to $1.25455, slightly above Monday’s low of $1.2540.

The Japanese yen edged up slightly to 151.75 against the dollar, after earlier touching 151.79.

This marks the yen’s weakest level since hitting a 34-year low of 151.975 on Wednesday, prompting Japan to escalate warnings of intervention. Finance Minister Shunichi Suzuki reiterated on Tuesday that he was considering all options to respond to uncontrolled currency movements.

Japanese authorities intervened in 2022 when the yen fell to a 32-year low of 152 yen to the dollar.

The Chinese yuan declined to its lowest level in four and a half months as the dollar’s ascent offset the impact of state-owned banks selling the US currency. The yuan dropped to 7.2349 against the dollar, its weakest level since November 2023.

The Australian dollar stabilized at US$0.6490 after hitting its lowest level in almost a month at US$0.64815 on Monday.

The New Zealand dollar dipped 0.1 percent to $0.5947, nearing its lowest level in four and a half months at $0.59395, reached on Monday night.

In the cryptocurrency realm, Bitcoin fell 4.4 percent to $69,707 following a sudden drop of over three thousand dollars within about 15 minutes.