[1/2]Representations of the cryptocurrency Bitcoin and the US dollar are shown in this illustration, August 10, 2022. REUTERS/Dado Rovik/Illustration Obtaining licensing rights
TOKYO (Reuters) – The dollar fell against a basket of currencies on Tuesday, reflecting a decline in Treasury yields as investors awaited key U.S. economic data ahead of the Federal Reserve’s monetary policy meeting next week.
Bitcoin is back in the market spotlight as the virtual currency surges amid speculation that the United States may soon approve a bitcoin exchange-traded fund.
The dollar index sat in the latest trading around 105.47, after losing more than 0.5% in the previous session and falling to its lowest level in about a month as US Treasury bond yields declined.
The dollar found support last week after Federal Reserve Chairman Jerome Powell said US economic strength may warrant tighter financial conditions, pushing the benchmark 10-year yield above 5% to its highest level since July 2007.
The large swing in returns comes against a backdrop of global uncertainty and heightened geopolitical risks that have jittered markets, with tensions rising in the Middle East since the October 7 Hamas attack on southern Israel.
Market attention then turns to some of the final bits of US economic data ahead of the Fed’s October 31-November 1 meeting, with Tuesday’s flash Purchasing Managers’ Index (PMI), GDP as well as other inflation. Report due later in the week.
Matt Simpson, chief market analyst at City Index, said the PMI data could determine market expectations ahead of the GDP report.
“If the data is tilted far enough in one direction, it could lead to a strong dollar rally or a collapse with the Fed in a blackout period,” he said, referring to the period leading up to a policy meeting when restrictions are imposed on public communications from officials. central bank. .
The Federal Reserve is expected to hold interest rates at its meeting next week.
The European Central Bank is also set to leave interest rates unchanged at its meeting on Thursday, after raising key interest rates by 25 basis points in September.
The euro continued its gains after reaching its highest level in a month against the dollar on Monday, settling around $1.0682.
Meanwhile, the dollar’s decline gave some minor relief to the battered yen, with the Japanese currency hovering near 149.65 after reaching the sensitive 150 level on Friday and Monday.
Traders see the 150-point threshold as a potential line for Japanese authorities to intervene in the currency market.
However, data out of the US this week could push the yen back into the danger zone if it turns strong.
“The yen will be particularly sensitive to hot US data, especially if it causes Treasuries to break through what looks like a key resistance level of 5% or so,” said Kyle Rodda, senior financial market analyst at Capital.com.
Markets will also await the Bank of Japan’s policy decision on October 31. The rise in global interest rates has sparked discussion about a possible adjustment to the bank’s policy to control bond yields.
Japan’s factory activity contracted for the fifth straight month in October while the services sector saw its weakest growth this year, a survey showed on Tuesday.
In cryptocurrency markets, bitcoin continued to rise in Asian trading hours to touch $35,198, its highest level since May 2022, amid speculation that a bitcoin exchange-traded fund is imminent.
Brigid Riley reports. Edited by Sam Holmes and Shri Navaratnam
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