The US dollar rose, but at low levels at the beginning of Friday’s morning sessions in the European stock exchanges. The greenback appears to be closing at almost the same price as the week kicked off with, especially after the speech by New York Federal Reserve Chairman John Williams, which has raised hopes of a major interest rate cut in the Fed’s next policy meeting.
“It’s better to take preventative measures than to wait for disaster to unfold,” said the head of the Reserve at a central bank conference in New York. “When you only have so much stimulus at your disposal, it pays to act quickly to lower rates at the first sign of economic distress.”
The comment renewed hopes that the Federal Reserve would cut Fed interest rates by 50 basis points – instead of the more modest 25 basis points – at the FOMC July 30-31 meeting . The speeches to be delivered later by Eric Rosengren and James Bullard from the Federal Reserve will give further clues as to whether Williams’s view is the majority view.
The comments dropped the dollar index, which measures the strength and performance of the greenback against a basket of major market rivals, down about half a percent late on Thursday. However, it recovered in the early morning hours to trade at 96.537 points.
The prospect of an easier US monetary policy has given the central banks in emerging markets more confidence to cut interest rates without undermining their currencies. Indonesia, South Korea and South Africa cut their key interest rates by 25 basis points on Thursday, but the Indian rupee reached its highest level in 15 months against the dollar, while the South African rand hit its highest level in seven months.
In Europe, the Euro and Pound also benefited from Williams’ comments, with the British Pound able to rise above $1.25 again after touching its lowest level in two years below $1.24 earlier this week. Meanwhile, the euro rose to $1.1282, before falling to $1.1263, as German producer prices came in lower than expected in June, which reminded traders of the action the ECB needs to take at its board meeting next week.
Bloomberg said Thursday that the European Central Bank (ECB) has begun to review how to set its inflation target, which could eventually lead to a more flexible monetary policy for a longer time.