Dollar Nears Yearly High as Investors Await Fed's Policy Decision

The dollar is on the brink of reaching its highest level this year against a basket of currencies, while U.S. stock futures dipped slightly as investors anticipate the Federal Reserve's policy decision. With numerous European and Asian markets closed, trading activity remained subdued.

On Tuesday, the dollar surged by over 0.5% against the currencies forming the dollar index, propelling the gauge to nearly match its November peak, reaching 106.49 on Wednesday.

Despite a momentary stabilization, the euro lingered near five-month lows at $1.0670, while the pound maintained its position at $1.2478.

This recent uptick in the dollar follows a report revealing stronger-than-anticipated first-quarter U.S. employment cost growth, prompting a rise in Treasury yields and a recalibration of expectations for Fed rate cuts in 2024, now anticipated to be just one.

As the Fed convenes, it is widely expected to maintain its benchmark interest rate. Market participants eagerly await insights from Chair Jerome Powell's subsequent press conference, seeking clarity on the potential impact of recent inflationary pressures on future monetary policy adjustments.

Michael Sneyd, head of cross-asset and macro quantitative strategy at BNP Paribas, underscored a discernible shift in Fed rhetoric since mid-April, suggesting that the dollar's current valuation may not be sustainable in the short term.

While European bond markets observed closure for the May 1 holiday, U.S. S&P500 futures and Nasdaq futures experienced a modest decline, influenced primarily by losses in chip stocks. However, amidst this downturn, Amazon.com stood out with a notable 2.2% pre-market surge following robust quarterly earnings.

In the realm of currency markets, attention has gravitated toward the Japanese yen, which oscillated between 160 and 154.4 per dollar, purportedly due to potential official intervention.

Meanwhile, oil prices extended their decline for the third consecutive day, buoyed by expectations of a ceasefire in the Middle East and burgeoning crude inventories in the U.S. Conversely, gold witnessed a marginal uptick, albeit tempered by the easing geopolitical tensions in the region.

Also Read: US Dollar Slips as Investors Await Fed's Decision Amidst Yen's Rollercoaster Ride