Dollar gives up five-month high on profit-taking

The dollar lost ground in European trade on Wednesday against a basket of major rivals away from five-month highs and on track for the first loss in six days on profit-taking.

The currency is also pressured as US 10-year treasury yields stalled ahead of further remarks by Fed officials on the future of US interest rates. 

Recent aggressive remarks by Fed Chair Jerome Powell dragged the odds of Fed rate cuts in June and July sharply down. 

The Index

The dollar index fell 0.2% to 106.14, with a session-high at 106.44. 

The index closed up 0.15% on Tuesday, the fifth profit in a row, scaling a five-month high at 106.44. 

The gains are bolstered by higher US treasury yields and strong US data. 

US Yields

US 10-year treasury yields fell 0.75% on Wednesday away from a five-month highs at 4.696%, pressuring the greenback.

The bond markets await fresh clues about the future of US interest rates. 

Powell 

Fed Chair Jerome Powell said in a symposium earlier this week that inflation has stiffened and held in its place during the first quarter, raising concerns about the prospects of interest rate cuts in 2024.

Powell added that it’s clear that recent inflation data didn’t give the Fed enough confidence that inflation is heading towards the target, and it could take longer than expected.

San Francisco Fed President Mary Daly said there’s no urgent need to cut interest rates, warning from taking rash decisions. 

US Rates

Following the remarks, the odds of a Fed interest rate cut in June tumbled to just 15%, while the odds of such a cut in July fell to 41%.

Now traders barely expect two Fed interest rate cuts this year instead of the previously estimated three.