U.S. dollar holds gains ahead of Fed minutes

[August 17, 2022]  By Iain Withers

LONDON (Reuters) -The dollar held onto gains against other major currencies on Wednesday, ahead of the release of minutes of the U.S. Federal Reserve's July meeting that could give further clues about the pace of further interest rate hikes.

The greenback has recovered the ground it lost since softer-than-expected inflation data last week led to investor bets that price rises may have peaked, weakening the dollar.

"The question is whether the Fed wants to use these minutes as a communication tool to push back against the view of a 2023 easing cycle," ING currency analysts said in a note.

Several Fed officials have signalled over the past week that the central bank will still act decisively to combat inflation, helping lift the dollar back up.

U.S. retail sales data due later on Wednesday will also be watched closely as an indicator of the economy's resilience.

The dollar index was last up 0.1% on the day at 106.600. It has recovered by around 2% since last week's post-inflation data low, but remains more than 2% off the two-decade high of 109.29 hit in mid-July.

The euro was broadly unchanged versus the dollar at $1.01730, after revised official data showed euro zone economic growth was slightly less robust in the second quarter than previously estimated.

Sterling was flat at $1.220990, after data showing British consumer price inflation jumped to 10.1% in July - the highest since February 1982.

An employee of a bank counts US dollar notes at a branch in Hanoi, Vietnam May 16, 2016. REUTERS/Kham

The New Zealand dollar jumped as much as 0.6% after the country's central bank announced a fourth consecutive 50 basis point rate hike to 3.00% without giving hints of slowing down.

But the kiwi dollar later reversed course and was last down 0.7% on the day at $0.62985.

"It (the RBNZ's remarks) were marginally on the hawkish side, enough to keep the pressure on rates," said Jason Wong, senior market strategist at BNZ.

The Aussie dollar fell 1% to $0.69510, after wage data showed growth slightly below expectations and well behind inflation.

The U.S. dollar gained 0.5% versus the yen to 134.960, after data showed Japan's trade gap widened after a record surge in imports in July.

(Reporting by Iain Withers, additional reporting by Alun John in Hong Kong, Editing by Mark Heinrich and David Evans)

[© 2022 Thomson Reuters. All rights reserved.]This material may not be published, broadcast, rewritten or redistributed.  Thompson Reuters is solely responsible for this content.