[1/2]Representations of the cryptocurrency Bitcoin and US Dollar are seen in this image from August 10, 2022. Portal/Dado Ruvic/Illustration acquire license rights
TOKYO, Oct 24 (Portal) – 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 policy meeting next week.
Bitcoin returned to the market spotlight as the virtual currency soared on speculation that the United States could soon approve a Bitcoin exchange-traded fund.
The dollar index was last at around 105.47, after losing over 0.5% in the previous session and falling to its lowest level in about a month as U.S. Treasury yields fell.
The greenback found support last week after Fed Chairman Jerome Powell said U.S. economic strength could justify tighter financing conditions, pushing the benchmark 10-year yield above 5% to its highest level since July 2007.
The sharp swings in yields come as global uncertainty and growing geopolitical risks rattle markets and tensions in the Middle East have been high since Hamas attacked southern Israel on October 7.
Next, the market’s attention turns to some of the final U.S. economic data ahead of the Fed’s October 31-November 1 meeting, with the release of the flash Purchasing Managers’ Index (PMI) on Tuesday, gross domestic product and another inflation report due later in the week.
The PMI data could set market expectations ahead of the GDP report, said Matt Simpson, senior market analyst at City Index.
“If the data tilts 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 before the monetary policy meeting in which public communication by central bank officials is restricted.
The Fed is expected to keep rates on hold at its meeting next week.
The European Central Bank will also leave key interest rates unchanged at its meeting on Thursday, after raising its base rate by 25 basis points in September.
The euro extended gains after hitting a one-month high against the greenback on Monday at around $1.0682.
Meanwhile, the dollar’s decline provided some relief to the battered yen, with the Japanese currency hovering near 149.65 after hitting the sensitive 150 mark on Friday and Monday.
Traders see the 150 threshold as a possible limit for intervention by the Japanese authorities in the foreign exchange market.
However, data from the United States this week could see the yen fall back into the danger zone if it strengthens.
“The yen will be particularly sensitive to hot U.S. data, particularly if it causes Treasury bonds to break through a key resistance level around 5%,” said Kyle Rodda, senior financial markets analyst at Capital.com.
Markets will also pay attention to the Bank of Japan’s policy decision on October 31st. The rise in global interest rates has sparked discussions about a possible change in the bank’s policy to control bond yields.
A survey on Tuesday showed Japan’s factory activity fell for a fifth straight month in October, while the services sector posted its weakest growth this year.
In cryptocurrency markets, Bitcoin continued to rise during Asian trading hours, reaching $35,198, its highest level since May 2022, on speculation that a Bitcoin exchange-traded fund is imminent.
Reporting by Brigid Riley. Edited by Sam Holmes and Shri Navaratnam
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