1 month ago

Dollar Weakens Ahead of Fed Minutes; Sterling up on Brexit Hopes

Investing.com -- The dollar was lower against the euro and the British pound in early trading in Europe Wednesday as

Investing.com -- The dollar was lower against the euro and the British pound in early trading in Europe Wednesday as a fall in U.S. Treasury yields reduced its attractiveness amid expectations of dovish news on interest rates from the Federal Reserve.

Bond yields are under pressure from economic data that have tended towards the weak side in recent days. The 10-year benchmark Treasury yield has fallen to 2.64% from 2.80% over the last month, amid uncertainty over how far the Federal Reserve can afford to tighten monetary policy.

Such uncertainty puts a special focus Wednesday on the release of the minutes from the last Federal Open Market Committee meeting, where the U.S. central bank pivoted to a more neutral and data-dependent stance, dropping its previous guidance about the likelihood of further interest rate increases.

Traders will be looking too for hints about how far and how fast the Fed intends to reduce its balance sheet. Loretta Mester, the Cleveland Fed President, said Tuesday that she was in favor of ending the balance sheet wind-down this year, an outcome that would leave a substantial amount of crisis-era liquidity in the system, capping any rise in market interest rates. At the same time, she said official interest rates were still more likely to go up than down.

At 03:20 AM ET (0820 GMT), the dollar index that measures the greenback against a basket of major currencies was at 96.333, down over half a percent from its overnight high. The euro was close to a one-week high at $1.1351 after German producer price inflation data for January came in higher than expected.

The pound was higher against both dollarand euro after a report that Prime Minister Theresa May would drop efforts to push the so-called “Malthouse Compromise” – an attempt to break the deadlock over the status of the Irish border after Brexit. EU officials had indicated it was unacceptable. May is due to meet European Commission President Jean-Claude Juncker later Wednesday in Brussels.

Overnight, the Chinese yuan had rallied around 0.5% against the dollar to 6.7227 after Bloomberg reported that the U.S. would use the ongoing trade talks to seek a commitment from China not to devalue it.

The Aussie and Kiwi were both a touch weaker amid a lack of major news.