Dollar holds gains in thin trading as markets await Fed minutes, US GDP

By Rocky Swift

TOKYO, Feb 17 (Reuters) – The dollar held gains on Tuesday as markets awaited signals, expected later this week, about the potential timing of rate cuts by the Federal Reserve.

The yen trimmed losses from a day earlier when worse-than-expected Japanese economic data stirred expectations that the government would ramp up stimulus. The Aussie dollar edged lower after minutes from the Reserve Bank of Australia showed policymakers were in no rush to raise rates.

Trading was thin with many markets in Asia closed for the Lunar New Year holiday and following the President’s Day holiday in the U.S. Key economic events lie later in the week, with minutes from the Fed’s last meeting and advance figures on U.S. gross domestic product.

“We’re quite positive on the U.S. economy,” said Kristina Clifton, senior currency strategist at Commonwealth Bank of Australia in Sydney. “The market is currently pricing a high chance of a June interest rate cut, which is also our view. However, we differ from the market in that we expect a follow-up cut in July.”  

“We judge that the most important driver of the dollar through 2026 will be the narrative of U.S. exceptionalism,” she added.

The dollar index, which measures the greenback against a basket of currencies, inched up to 97.12 after a 0.2% gain in the previous session. The euro slid 0.1% to $1.184.

The yen strengthened 0.3% to 153.04 per dollar. Sterling weakened 0.11% to $1.3607.

Data on Friday showed U.S. consumer prices increased less than expected in January, giving the Fed additional leeway for policy easing this year. Money market traders are pricing about 59 basis points of easing for the rest of this year.

The Fed’s Open Market Committee issues minutes from its January meeting on Wednesday. Other key data points this week include inflation readings for Britain, Canada and Japan, as well as preliminary readings of global business activity on Friday.

A recent rally in the yen stalled on Monday when official figures showed Japan’s economy barely grew last quarter. Japan’s currency remains about 4% weaker against the dollar since fiscal dove Sanae Takaichi became prime minister last year.

Money flowing into Japan’s ebullient stock market along with expected rate hikes by the Bank of Japan are starting to turn the tide on yen weakness, said Bart Wakabayashi, the Tokyo branch manager at State Street.

“Investments continue to come into Japan and it’s looking good,” he said. “Real money investors have been reducing their overweight in dollar-yen, so buying the yen and selling the dollar.”

The Australian dollar weakened 0.1% versus the greenback to $0.706. New Zealand’s kiwi was little changed at $0.6029 ahead of the Reserve Bank of New Zealand’s policy meeting on Wednesday, when it is widely expected to hold rates steady.

Minutes of the RBA’s last policy meeting showed the board was uncertain about whether further hikes would be needed, but highlighted that inflation had already been above target for three years.

In cryptocurrencies, bitcoin fell 0.68% to $68,377.70, while declined 0.68% to $1,985.32.

(Reporting by Rocky Swift; Editing by Thomas Derpinghaus and Lincoln Feast.)