Join +750K new investors every month who copy stock picks from billionaire's portfoliosSign Up Free

Dollar gains for a second day as markets eye Fed minutes

Published 10/17/2018, 04:16 AM
© Reuters. U.S. Dollar banknotes are seen in this photo illustration

By Saikat Chatterjee

LONDON (Reuters) - The dollar edged higher on Wednesday as a rally on Wall Street boosted risk appetite, although gains were capped before the release of Fed minutes later in the day.

Still, moves were muted in currency markets, contrary to the big gains in global stocks and drops in government bond yields in markets such as Italy.

"The dollar has been strongly correlated to risk appetite for much of this year, but in the last few days we have seen this correlation loosening a bit, suggesting markets need more strong economic data to push the dollar higher," said Manuel Oliveri, an FX strategist at Credit Agricole (PA:CAGR) in London.

Against a basket of its rivals (=USD) (DXY), the dollar rose 0.1 percent to 95.15. It remains about 2 percent below a 2018 peak of near 97 hit in mid-August.

Major Wall Street indexes rose by more than 2 percent each as strong earnings indicated the U.S. economy is still expanding, despite rising interest rates and global trade-war tensions .

But market analysts warned against buying into the dollar's strength as global financial conditions appeared to be tightening globally.

Cross-currency basis swaps in euros, yen and sterling, money market gauges of offshore dollar liquidity, have widened in recent weeks. That suggest the U.S. Federal Reserve's rate hikes have cut into the availability of overseas dollars.

"Risk caution is warranted ... the replacement of Fed liquidity has come at the expense of tightening liquidity conditions outside the U.S.," Morgan Stanley (NYSE:MS) strategists said.

Markets will be looking for clues on the dollar's direction and the path for U.S. interest rates from minutes of the Fed's September meeting, due for release later on Wednesday.

Interest rate futures are pricing in a 77 percent likelihood that the Fed will raise rates in December, according to the CME Group's FedWatch Tool. Two more increases are likely next year.

The British pound was down 0.2 percent at $1.3158 after gaining 0.25 percent on Tuesday as a crucial European Union summit got underway.

© Reuters. U.S. Dollar banknotes are seen in this photo illustration

On Wednesday, the euro (EUR=EBS) traded lower at $1.15575, down 0.2 percent. On Tuesday, it reached $1.1622 - its highest since Oct. 1 - before giving up its gains.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.