Dollar retreats ahead of minutes from Fed’s October meeting

The U.S. dollar retreated once more in early European trade Tuesday, falling to a more than 2-month low ahead of the release of the minutes from the Federal Reserve’s last meeting.

At 04:10 ET (09:10 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, fell 0.2% to 103.135, dropping to levels last seen in late August.

Dollar retreats ahead of Fed minutes
The dollar index has fallen in seven of the last eight sessions as a string of soft labor market and inflation readings have seen traders speculate that the Federal Reserve has reached the end of its rate-hiking cycle, and cuts are the next logical step.

Traders have priced in a 30% chance that the Fed could begin trimming rates by as soon as March 2024.

The minutes of the Fed’s October meeting are due later in the session. This was the meeting where the policy makers decided to keep rates on hold, and could provide more cues on monetary policy.

“The market seems in the mood to look out for some dovish headlines here, and this can prove a negative dollar event risk,” analysts at ING said, in a note.

Euro, sterling rise to 2-month highs
In Europe, EUR/USD rose 0.2% to 1.0955, climbing to its highest level since mid-August, even though economic growth in the eurozone remains weak.

ECB policy makers have been keen to quash speculation that rate cuts are just around the corner even as inflation retreats sharply in the region.

The Governor of the Bank of Spain, Pablo Hernandez de Cos, said on Monday it was “premature” to talk about the possibility of interest rate cuts, while his French equivalent Francois Villeroy de Galhau said rates have reached a plateau where they will likely remain for the next few quarters.

ECB President Christine Lagarde is set to speak later in the session, and her comments will be studied carefully for clues over future policy,

GBP/USD rose 0.2% to 1.2532, climbing close to a two-month peak, with U.K. inflation remaining among the highest in the developed world even after it recorded the largest fall in the annual CPI rate from one month to the next since April 1992 in October.

Bank of England Governor Andrew Bailey has previously said that the British central bank had to “see the job through” on bringing down the inflation rate.

Bailey is among a number of BOE officials that are due to speak later in the session.

Asian currencies post strong gains
In Asia, USD/CNY fell 0.5% to 7.1335, with the yuan hitting an almost four-month high after China’s central bank set the midpoint of the yuan’s trading band at its strongest since Aug. 7.

USD/JPY traded 0.6% lower at 147.47, with the yen at its strongest level in three months versus the dollar, resulting in traders dialing down bets that Japanese authorities will need to intervene in currency markets.