Dollar steadies near highs as Fed holds rates amid global tensions

Dollar steadies near highs: The dollar held firm near five-and-a-half-month highs on Wednesday as Federal Reserve officials reiterated a pause in the rate-cutting cycle pending fresh economic data, while the outlook for monetary easing by G10 central banks remained stable.

Federal Reserve Chair Jerome Powell and other top officials refrained from indicating when interest rates might be cut, emphasising the need for continued restrictive monetary policy.

Investors scaled back bets on future rate cuts as recent US economic data differed from the Fed's forecasts. Additionally, escalating tensions in the Middle East boosted the dollar's appeal as a safe-haven asset.

Analysts remained bullish on the greenback, anticipating further gains, especially in the event of an escalation in the Middle East crisis.

The Bank of America revised its forecast for Fed monetary easing, now expecting it to start in December or later instead of June, a change that could further strengthen the dollar if markets adjust their expectations accordingly.

Despite the dollar's strength, concerns about a potential intervention by the Bank of Japan to support the yen lingered, with market participants closely monitoring the yen's movements and authorities' responses.

In currency markets, the dollar index was down 0.2 per cent at 106.12, just below the five-month peak reached on Tuesday. Against the euro, the dollar traded at $1.0643, not far from its recent high.

Traders are now pricing in 40 basis points of cuts in 2024, significantly lower than the 160 bps priced in at the beginning of the year.

Overall, the dollar's strength is impacting global currency markets, with emerging markets in Asia particularly affected as they try to stabilise their currencies amidst the dollar's rally.

(with Reuters inputs)