Dollar edges higher; focus on Fed minutes and US debt auctions

Dollar prices inched higher on Wednesday as the near-term focus shifted to the minutes of the Federal Reserve’s last policy meeting for hints on the future pace of U.S. monetary tightening.

The dollar index rose 0.1 percent to 89.805, which was up about 1.8 percent from Friday’s three-year low of 88.251.

The greenback rose 0.3 percent to 107.70 yen. Market players said stop-loss dollar buying gave an added lift to the dollar, which rose to 107.90 yen at one point.

Market participants attributed the dollar’s bounce over the past few sessions to short-covering after speculative trades helped push it down to a 15-month low of 105.545 yen last week.

“It’s mainly a positioning clean-up in my view,” said Tareck Horchani, head of sales trading in Asia Pacific for Saxo Markets in Singapore.

The dollar will probably consolidate against the yen after its recent selloff, Horchani said.

Some market players were recently buying dollar/yen put options to position for dollar weakness, and the market now appears “well covered” against downside risks in the U.S. currency, he said.

The yen showed a muted reaction to comments from Masatsugu Asakawa, Japan’s top currency diplomat, who was quoted as saying that yen’s recent moves were “one-sided”.

The U.S. currency has weakened against the yen and other major currencies in recent months, with the positive impetus from rising U.S. interest rates offset by bearish factors, including worries that the United States could pursue a weaker dollar policy.

Mounting worries about the U.S. budget deficit, which some say could balloon to more than $1 trillion in 2019 on heavy government spending and large corporate tax cuts, have also undermined the greenback.

Against this backdrop, doubts for the sustainability of the dollar’s bounce persist.

“I would characterize the rebound this week as more of a technical rebound. The underlying bias is still for dollar weakness,” said Heng Koon How, head of markets strategy for United Overseas Bank (UOB) in Singapore.

The euro held steady at $1.2332, having retreated from a three-year high of $1.2556 set on Friday.

Later on Wednesday, investors will turn their attention to the minutes of the U.S. Federal Reserve’s last policy meeting in late January.

A hawkish tone to the minutes could prompt markets to price in the risk of a faster U.S. interest rate hikes and help lift the dollar further, said Saxo Markets’ Horchani.

“Positioning in EM (emerging markets) is quite strong, it’s quite big. We could get a bigger dollar rally against EM,” Horchani said, referring to emerging market currencies.

Traders are also watching this week’s large U.S. government debt auctions for clues to international investors’ appetite for U.S. assets.

Some of the U.S. government’s short-term borrowing costs rose to their highest level in more than nine years on Tuesday as it raised $179 billion in the Treasury securities market to fund spending and make debt payments.

Source: Reuters