Dollar Declined as Investors speculate on the U.S. Interest Rate Staying lower
The dollar slipped on Tuesday morning in Asia, hitting a six-year low against its Canadian counterpart and hanging close to multi-month lows against European currencies because investors are expecting that up bets the U.S. Federal Reserve would not lift interest rates.
The U.S. Dollar Index traces the greenback against a basket of other currencies slightly down 0.05% to 90.097.
The USD/JPY pair slightly up 0.03% to 109.22, with Japan’s slow COVID-19 vaccination rate and dollar weakness securing the duo into a narrow range.
The yen also fell against the pound and the riskier currencies as data released earlier in the day said that the Japanese economy contracted more than expected during the first quarter of 2021, as its GDP contracted 5.1% yearly and 1.3% quarterly.
The AUD/USD pair was high 0.35% to 0.7791, with the Reserve Bank of Australia releasing the minutes from its latest meeting earlier in the day.
The NZD/USD pair gained 0.47% to 0.7234.
The USD/CNY pair slightly down 0.17% to 6.4278.
The GBP/USD pair was high 0.27% to 1.4173, its most powerful level since February 2021, as the U.K. begins to get out from the stringent COVID-19 lockdown.
The dollar was at $1.2167 against the euro, close to its weakest level since Feb. 26, 2021. The Canadian dollar climbed to a six-year high of C$1.2045 against its U.S. counterpart, supported by a rise in oil prices.
On Monday, Dallas Fed President Robert Kaplan repeated his view that he does not expect interest rates to rise until 2022, thus sparking a further drop in bets that inflationary pressure could force the central bank to act sooner than expected.
Other Fed officials are expected to speak throughout the week and investors also await the release of the minutes from the Fed’s latest meeting, due on Wednesday.
Investors will examine the minutes once they are delivered for evidence as to the Fed’s monetary policy direction for the rest of 2021. However, an agreement is building that the Fed will continue with its current negative policy over the assumption that any acceleration in inflation is temporary, in turn keeping the dollar on a downward trend.