Fed-fueled dollar rally stalls as traders wait for more clues

Frankfurt (May 25)  The dollar struggled for direction against other major currencies on Wednesday, failing to continue a recent rally that was driven by hints that U.S. interest rates could rise this summer.

Meanwhile, the pound jumped to its highest level against the dollar in three weeks after recent polls suggested the U.K. won’t vote to leave the EU at a crucial referendum next month.

The ICE Dollar index DXY, -0.05%  was flat around 95.559, but still trading around the highest level since late March.

The greenback has jumped in recent weeks after key Federal Reserve officials have indicated a rate hike in June or July is still on the table. After a mixed string of U.S. data this winter, investors had pushed out expectations for a rate increase until the fourth quarter. The dollar maintained its strength on Tuesday on positive U.S. new-home sales in April, but lost steam during Asian trading hours due to a lack of fresh cues.

The dollar USDJPY, +0.14%  was trading at 110.15 yen, compared with ¥110.00 late Tuesday in New York. After touching a two-month low of $1.1133 overnight, the euro EURUSD, +0.0539%  was at $1.1150, compared with $1.1140 late Tuesday.

“Expectations for [the Fed] rate increase aren’t gaining steam,” said Kyosuke Suzuki, head of the foreign-exchange and money-market sales department at Société Générale in Tokyo.

Suzuki said investors will have to take a wait-and-see approach ahead of Fed Chairwoman Janet Yellen’s speech at Harvard University on Friday, which should offer some clarity about the central bank’s next move.

In addition, investors aren’t likely to take big risks ahead of the U.K. referendum on European Union membership on June 23, said Suzuki. “That’s making investors reluctant to seek [the dollar’s] upside,” he said.

Meanwhile, fears that the Brits will vote in favor of a Brexit have receded in recent weeks, helping the pound shed some of its referendum-fueled losses. An ORB poll on Tuesday showed 55% of respondents support the U.K. staying in the EU, compared with 42% favoring an exit.

Sterling GBPUSD, +0.3826%  rose to $1.4630 on Wednesday, the highest it’s been since May 4, according to FactSet data. Against the euro, the pound GBPEUR, +0.3197%  jumped to an intraday high of €1.3155, an almost four-month high.

Elsewhere, the People’s Bank of China set its daily yuan-fixing at the weakest level against the U.S. dollar in more than five years. The onshore yuan USDCNY, +0.0793%   weakened to 6.5642 afterward, a three-month low.

Source: MarketWatch