U.S. Dollar Eases Slightly but Remains Near One-Week High Post-Fed Minutes

The U.S. dollar handed back some of the previous session’s gains on Thursday but remained near a one-week high following the release of hawkish minutes from the last Federal Reserve meeting. The minutes suggested that U.S. interest rates could remain elevated for an extended period.

As of 04:20 ET (08:20 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 104.705, after gaining 0.3% overnight.

The minutes from the Fed’s late-April meeting revealed that policymakers were increasingly concerned about sticky inflation. Some officials even discussed the possibility of raising rates further to curb inflation. Subsequent speeches by several Fed officials have echoed concerns about inflation levels.

Despite these discussions, the consensus is that the Fed is unlikely to raise interest rates further. However, markets are now pricing in a greater chance that the central bank will maintain higher rates for a longer period. Later in the session, Atlanta Fed Chair Raphael Bostic is scheduled to speak, and his comments, along with manufacturing activity data for May, will be closely watched for further insights.

Sterling Holds Firm Post-Election Announcement

In Europe, GBP/USD rose 0.1% to 1.2730. Sterling maintained its firm tone after Wednesday’s data showed that U.K. inflation fell by less than expected in April. Prime Minister Rishi Sunak called a national election, which his Conservative Party is widely expected to lose to the opposition Labour Party after 14 years in power.

Eurozone Business Activity Data

EUR/USD traded 0.2% higher at 1.0839, buoyed by data showing that eurozone business activity expanded at its fastest pace in a year this month. HCOB’s preliminary composite Purchasing Managers’ Index (PMI) climbed to 52.3 in May from April’s 51.7, surpassing expectations for a more modest increase to 52.0. This growth was driven by strong demand for services, while the manufacturing sector showed signs of nearing a recovery.

The European Central Bank has largely confirmed it will begin its rate-cutting cycle next month. The current debate among policymakers is focused on how many more cuts, if any, will be agreed upon this year.

Yen and Chinese Yuan

In Asia, USD/JPY remained largely flat at 156.76 after surging close to 157 in overnight trade. PMI data for Japan showed that manufacturing activity expanded for the first time in 11 months, contributing to the yen’s stability.

USD/CNY traded 0.1% higher at 7.2443, just below a six-month high. Tensions between the U.S. and China have escalated, with Beijing reportedly banning certain U.S. firms from participating in trade activities related to China and restricting some arms shipments to Taiwan. These moves are seen as retaliation for increased U.S. tariffs on key Chinese industries, set to take effect from August 1.

The market’s focus remains on the implications of central banks’ monetary policies and geopolitical developments. Investors are closely watching economic indicators and statements from policymakers for further guidance on the direction of interest rates and their potential impact on global markets.