Dollar edges lower; Fed minutes, PMI readings in focus

By Peter Nurse 

Investing.com - The U.S. dollar weakened in early European trade Wednesday, retreating ahead of the release of the minutes from the latest Federal Reserve meeting which could offer clues over the size of future rate hikes.

At 03:15 ET (08:15 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, fell 0.3% to 106.825.

The Federal Open Market Committee will release the minutes of its last meeting later Wednesday, at 14:00 ET (19:00 GMT), and traders will be looking for clues as to the thinking of the policymakers heading into the last meeting of the year in early December.

The market is expecting another interest rate increase, but while Fed officials have been keen to impress that the fight against inflation is not yet done, they have also indicated they might be leaning toward a smaller hike than the 75 basis points the U.S. central bank has raised by the last four meetings.

"The recent Fedspeak has undoubtedly added a layer of caution to the dovish pivot enthusiasm, which could mean investors may also be more reluctant to overinterpret dovish signals from the minutes," said analysts at ING, in a note.

Elsewhere, NZD/USD rose 0.8% to 0.6191 after the Reserve Bank of New Zealand raised interest rates by 75 basis points, its biggest ever rate hike, pushing the country's interest rates to a 14-year high.

The bank signaled that more tightening is likely as it struggles to cope with high levels of inflation, but also warned that economic growth will slow in the near term.

EUR/USD rose 0.5% to 1.0348, continuing its overnight gains ahead of the release of preliminary November PMI readings for the Eurozone, which are expected to confirm the difficult economic situation the region is in.

That said, the European Central Bank isn't likely to slow the pace of its interest rate increases anytime soon with inflation currently above 10%.

Governing Council member Gediminas Šimkus said Tuesday that the ECB must lift interest rates by at least a half-point in December, seeing a larger move as still an option.

GBP/USD rose 0.2% to 1.1903, with the pound continuing to push higher after touching a record low of 1.0327 in September when the Truss government unveiled plans for large unfunded tax cuts.

AUD/USD rose 0.2% to 0.6663, helped by the better risk appetite, while USD/CNY rose 0.1% to 7.1498 as COVID-19 cases rose in a number of major cities in China, prompting the introduction of more mobility curbs, potentially causing more disruptions in business activity.