TOKYO, June 5 — The US dollar struggled to bounce off seven-week lows today after US central bank officials hinted at the possibility of an interest rate cut in the face of rising risks to trade and global growth.
Federal Reserve Chairman Jerome Powell on yesterday dropped his standard reference to the Fed being “patient” in approaching any rate decision, saying instead the central bank will respond as “as appropriate” to trade pressure.
The US dollar index against a basket of six peers barely budged, moving up 0.03 per cent at 97.105, within reach of a recent low of 96.995 brushed overnight — its lowest since April 18. It has now fallen 1.3 per cent from a more than two-year high of 98.371 touched on May 23.
Masafumi Yamamoto, chief currency strategist at Mizuho Securities, said major currencies barely reacted to Powell's comments as investors had already priced in several rate cuts by the Fed on the back of the shifting global growth outlook.
The Fed chairman's comments came a day after St Louis Federal Reserve President James Bullard said in a speech that a rate cut may be needed “soon.”
Rate cuts by some central banks in recent weeks could potentially signal the start of a global monetary easing cycle to stave off a sharper economic downturn.
“Central banks across the globe are adopting a dovish tone. It's kind of a preemptive move,” said Yamamoto.
“It doesn't necessarily mean that the economy is worsening — rather the outlook worsened. It's mainly related to the trade tensions between the US and China and the US and Mexico.”
Australia's central bank yesterday slashed benchmark cash rates to a record low of 1.25 per cent and signalled willingness to go further if worsening outlook persists.
Last month, New Zealand's central bank cut its benchmark interest rate for the first time in two-and-a-half years as it moved to support a cooling economy and counter global uncertainties.
In South Korea, its central bank last week kept policy settings unchanged but adopted a more accommodative tone while India is expected to cut rates at its policy meeting tomorrow.
Today, the Australian dollar rose 0.05 per cent to US$0.6994 ahead of the release of first-quarter gross domestic product data due at 0130 GMT.
The median forecast in a Reuters poll of analysts showed GDP likely grew 0.5 per cent last quarter while the annual pace was expected at 1.8 per cent.
The euro was up 0.05 per cent at US$1.1257, extending its gains to a fourth session.
Against the yen, the US dollar held steady at 108.165, within striking distance of a near five-month high of 107.845 — its highest since January 10 — hit during the previous session. — Reuters
