Dollar steady as traders consider Fed, global rates outlook By Reuters

By Rae Wee

SINGAPORE (Reuters) – The dollar was on the back foot on Thursday, though it drew some support from higher U.S. Treasury yields as traders contemplated the possibility of another rate hike by the U.S. Federal Reserve, even if it pauses next week.

The increased expectations that U.S. and global interest rates may have further to rise has come on the back of surprise rate increases by the Bank of Canada (BoC) and the Reserve Bank of Australia (RBA) this week.

The BoC on Wednesday hiked its overnight rate to a 22-year high of 4.75% after a four-month pause, while the RBA on Tuesday similarly raised interest rates by a quarter-point to an 11-year high and warned of more to come.

The Canadian dollar was last steady at C$1.3365 to the greenback, after rising to a one-month top of C$1.3321 in the previous session.

“Canada’s central bank is viewed as one of the leaders when it comes to being proactive with monetary policy,” said Edward Moya, senior market analyst at OANDA.

“The BoC is signaling that more rate hikes could come and that has everyone rethinking that the Fed will be done after the July hike.”

Elsewhere, the U.S. dollar edged broadly lower in early Asia trade, with sterling rising 0.08% to $1.2449, while the euro similarly gained 0.08% to $1.0707.

European Central Bank policymakers had on Wednesday struck a hawkish tone and guided that more rate hikes are on the horizon, with interest rates likely to stay higher for longer.

Against the yen, the greenback slipped 0.21% to 139.85, with the Japanese currency buoyed by Thursday’s data showing Japan’s economy grew an annualised 2.7% in the first quarter, much higher than the initial estimate for a 1.6% expansion.

The dipped slightly to 104.02, though strayed not too far from an over two-month high hit last week, on the back of higher Treasury yields.

The two-year Treasury yield, which typically moves in step with interest rate expectations, last stood at 4.5479%, after touching an over one-week high of 4.604% in the previous session.

The benchmark 10-year yield was last at 3.7914%, having risen roughly 10 basis points to peak at 3.801% on Wednesday.

Money markets are pricing in a 29% chance that the Fed raises rates by 25bps at its policy meeting next week.

“Markets have raised their FOMC rate hike expectations following a surprise Bank of…