Dollar Holds Firm Ahead of Fed Minutes; Kiwi Declines

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On Wednesday, the US dollar held firm ahead of the release of the minutes from the Federal Reserve’s meeting. Consequently, the Kiwi declined following the cautious guidance of the Reserve Bank of New Zealand (RBNZ)

The US dollar index, which trails the greenback against other currencies, gained 0.07% to 96.57. It also reversed its Tuesday low of 0.06% to 96.49. 

Accordingly, investors highly anticipated that the Fed would hike interest rates sooner than expected in response to the continuous inflationary pressures. 

Consequently, they kept an eye close to the release of gross domestic product (GDP) and initial jobless claims today. 

Meanwhile, the New Zealand dollar sharply fell 0.53% to 0.69, trailing its loss of 0.13% yesterday. 

Moreover, the downturn of the Kiwi came after the RBNZ increased its policy interest rate for the second time in two months. 

New Zealand’s central bank raised its rates by 25.00 points to 0.75% from the previous figure of 0.50%.

At the same time, it widened its long-term cash rate projection by 50 bps as it released its policy decision earlier in the day. 

However, market participants forecasted a higher hike and long-term cash rate projection from the central bank, weighing down the New Zealand dollar. 

Then, the RBNZ also elevated its estimate for the eventual peak in the cash rate to 2.60% by the last quarter of 2023. 

Accordingly, this surpasses the 2.10% expected rate by early 2024 in its prior set of forecasts. 

Subsequently, New Zealand’s consumer prices edged up 4.90% year-over-year in the third quarter. This number exceeded the 1.00% to 3.00% target of its central bank. 

The surging demand brought on by pandemic stimulus and labor shortages brought a spike in inflation. 

Euro Weakens as Dollar Gains

Meanwhile, the euro slipped 0.32% to 1.12 as the eurozone announced that it would maintain its fiscal expansion next year. 

This decision aimed to cement the recovery of the area from the Covid-19 pandemic despite the supply chain woes and surging prices. 

On the economic data front, the eurozone manufacturing purchasing managers index (PMI) rose to 58.60% from the previous number of 58.30. 

Similarly, its services PMI climbed 56.60% from 64.60%, attributed to the early gains of the euro. 

Then, the Pound sterling dropped 0.08% to 1.34 as the Australian dollar plummeted 0.04% to 0.72. 

Furthermore, the Japanese yen gained 0.08% to 115.02, while the Swiss franc lost 0.30% to 0.94.

In addition, the Canadian dollar shed 0.12% to 1.27 as the Singaporean dollar curtailed 0.10% to 1.37.

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