Euro pinned near three-week lows as big U.S. rate cut bets dim

Wednesday,   10-Jul-2019   03:19 PM (IST)

The euro held near a three-week low against the dollar on Wednesday as investors trimmed expectations of aggressive rate cuts from the U.S. Federal Reserve later this month, pushing U.S. Treasury yields and the greenback higher. Expectations of easier monetary policy from U.S. policymakers soared last month and traders were waiting to see if Fed Chair Jerome Powell would give more clues on its plans during Congressional testimony starting on Wednesday. Expectations for a 50 basis point rate cut at a Fed meeting later this month have evaporated, but investors still expect a 25 basis points cut due to weak inflation and worries about growing business fallout from the U.S.-China trade war. The euro was last flat at $1.1211, not far from the $1.1194 low, losing 1.3% of value against the greenback in the past couple of weeks. A broad index that tracks the greenback’s performance against six other major currencies was at 97.503 after touching 97.588 on Tuesday, which was the highest since June 19. Yields on benchmark U.S. Treasury yields edged up to a three-week high of 2.11%, breaking a two-month falling streak and supporting the dollar. Analysts said the dollar should benefit if Powell’s comments on the U.S. economy are perceived as neutral or even slightly hawkish, which would support the argument that additional rate cuts will be limited. While expectations of a quarter point rate cut is firmly baked into the market, hopes of a 50-basis point cut has dropped to zero from nearly 20% a month ago, according to CME’s Fedwatch. Sterling was little changed at $1.2466, close to $1.2439, the lowest it's been since April 2017.