© Reuters. FILE PHOTO: The New Zealand Dollar note is shown in this illustration on June 2, 2017. REUTERS / Thomas White / Illustration / File / File photo
De Sujata Rao
LONDON (Reuters) – The US dollar slowed its two-day losing streak on Wednesday as Treasury yields slowed on recent declines, with its earnings taking down the euro as well as the dollar, which was raised earlier by a sharp message from a central bank.
The Reserve Bank of New Zealand has become the newest central bank, which has raised interest rates by half a point. While that move was expected, it also provided hawkish guidance on its political path, noting that larger and earlier growth has reduced the risk of inflation becoming steady.
That helped the kiwi dollar rise as much as 0.8% at one point to a three-week high of $ 0.6514. But as the U.S. dollar gained momentum, it yielded most of those gains to trade 0.2% higher at $ 0.648.
“The RBNZ’s move shows that central banks are not inclined to slow down. Conditions are quite tight in many G10 economies and it is a suggestion that soon political tension will remain aggressive,” said Colin Asher, a senior economist at Mizuho. in London.
Asher noted, however, that signs of a U.S. economic slowdown – evident recently in housing and trade confidence data released on Tuesday – could force markets to lower rates and inflation expectations.
, which hit 3-1 / 2-year highs earlier in May, then dropped about 40 basis points. They slipped another 2 bps on Wednesday but two-year yields were steady on the day.
The dollar fell 3% after hitting a two-year high earlier this month, but rebounded 0.4% from one-month lows reached earlier this week.
“My feeling is that there is a reasonable chance that U.S. tariffs have peaked and the dollar has peaked along with it. I don’t think it will fall sharply from here, but the prices of a stricter policy are due to a pause,” Asher added.
Earlier this week, the dollar was also hurt by European Central Bank chief Christine Lagarde, who put an end to negative interest rates in the coming months.
Lagarde’s comments implied an increase of at least 50 basis points to the deposit and fueled speculation of larger rises this summer.
But while the euro rose to a one-month high of $ 1.0748 on Tuesday, it slipped 0.6% on Wednesday to $ 1,067.
ECB board member Fabio Panetta was taking some steam out of the single currency when he warned of “normalizing outrage” caused by taking interest rates to “neutral” settings.
The euro also fell 0.3% against the Swiss franc, which has strengthened in recent days after central bank officials said they would not hesitate to tighten policy if inflation remained above target levels.
Later in the day, traders can gather clues as to the rate of tension of the Federal Reserve when minutes of the last political meeting appear.
Already, in an essay published Tuesday, Atlanta Fed Chairman Raphael Bostic warned that fast rates could create “significant economic dislocation,” urging his colleagues to “proceed with caution.”
“The Fed, of course, remains focused on inflation, but if inflation reads were (to) begin to moderate, then Bostic has opened up the possibility of a Fed break,” said Strickland, a market economist at the National Bank of Australia (OTC:). .