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U.S. Dollar Flat; Fed Considers Wait-and-See Approach to Rate Hikes

12/7/2018, 3:14:29 PMBasics of Trading
U.S. Dollar Flat; Fed Considers Wait-and-See Approach to Rate Hikes

The U.S. dollar was flat on Friday in Asia following reports that the Federal Reserve is considering adopting a wait-and-see approach to rate hikes.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies last traded at 96.787 by 11:54 PM ET (04:54 GMT), up 0.02%.

The Wall Street Journal reported that the Fed could tighten monetary policy at a slower pace than expected.

The news came after Fed chairman Jerome Powell delivered a bullish assessment of the U.S. economy on Thursday.

“Our economy is currently performing very well overall, with strong job creation and gradually rising wages,’’ said Powell in his final scheduled public remarks before the central bank goes into a blackout period before its Dec. 18-19 policy meeting. “In fact, by many national-level measures, our labour market is very strong.’’

The Fed is expected to raise interest rates again at its Dec. 18-19 meeting, which would be its fourth hike this year. However, traders have reportedly reduced their bets on 2019 rate increases amid stock-market losses and worries over an escalating trade war between the U.S. and China.

"We've already heard from (Fed Chairman Jerome) Powell that he thinks the neutral rate has moved quite far in quite a short period of time," said Bart Wakabayashi, Tokyo branch manager at State Street (NYSE:STT) Bank.

"The guidance going forward will be key to yields and equity market moves, which right now foreign exchange markets seem to be reacting to."

Meanwhile, the Chinese yuan fell 0.2% against the U.S. dollar as the People's Bank of China (PBOC) set the yuan reference rate at 6.8664 vs the previous day's fix of 6.8599.

The USD/JPY pair traded 0.2% higher after the Bank of Japan's (BoJ) Governor Kuroda said in a statement that a rate hike from the US Federal Reserve does not necessarily require a response move from the BoJ.

The central bank is watching knock-on risks from trade frictions and Brexit proceedings carefully, he added.

Elsewhere, the AUD/USD pair was unchanged at 0.7233.