By Samuel Indyk and Rae Wee

LONDON (Reuters) – The greenback weakened to a two-month low on Tuesday after Federal Reserve officers signalled that the central financial institution was nearing the top of its tightening cycle, whereas the pound hit a 15-month excessive after pay progress exceeded expectations.

A number of Fed officers stated on Monday the central financial institution would possible want to lift rates of interest additional to convey down inflation however the finish to its present financial coverage tightening cycle was getting shut.

The feedback knocked the dollar to a two-month low of 101.66 in opposition to a basket of currencies, as merchants pared again their expectations about how a lot additional U.S. charges could should rise.

“Broader stress on the USD is prone to develop as cyclical headwinds mount and markets start to anticipate simpler Fed coverage settings,” stated Shaun Osborne, chief FX strategist at Scotiabank.

Markets at the moment are focusing their consideration on U.S. client costs information due out on Wednesday, which is able to present extra readability on the progress the Fed has made in its combat in opposition to stubbornly excessive inflation.

“The market would possibly obtain additional purpose to promote USD within the form of the inflation information,” stated You-Na Park-Heger, FX analyst at Commerzbank (ETR:), noting that headline and core inflation have been prone to reasonable.

EUROPEAN CURRENCIES STRENGTHEN

Sterling, in the meantime, hit a close to 15-month excessive of $1.2933 after British wage progress hit a joint report excessive, heaping stress on the Financial institution of England to tighten coverage additional to convey inflation beneath management.

The pound has been rallying on a stronger economic system and aggressive repricing of expectations for tighter BoE coverage, in keeping with Danske Financial institution FX analyst Kirstine Kundby-Nielsen.

“There have been no indicators of aid within the labour market information and markets proceed to cost in additional. That is been an enormous issue driving the pound,” Kundby-Nielsen stated.

Different European currencies have been additionally robust, with the Norwegian crown hitting a close to three-month excessive, the Swedish crown at a two-week peak and the Swiss franc at its strongest since January 2021 in opposition to the dollar.

At its June assembly, the Swiss Nationwide Financial institution reiterated it was able to intervene within the FX market to spice up the worth of the franc and scale back the impact of costlier imports.

“This is a vital purpose for the continual robust CHF,” Danske Financial institution’s Kundby-Nielsen stated.

“Likewise, the Swiss economic system continues to carry up effectively … fundamentals proceed to favour a robust franc.”  

The yen was among the many greatest gainers, strengthening round 0.6% and previous 141 per greenback for the primary time in practically a month. It was final buying and selling at 140.405.

The yen has risen greater than 3% from a seven-month low touched final month, when it weakened previous the intently watched 145 per greenback stage that put merchants on excessive alert for doable intervention from Japanese authorities.

“(The yen) began to stall earlier on, near 145, and that is as a result of there have been issues about FX intervention,” stated Financial institution of Singapore forex strategist Moh Siong Sim.

“The market is beginning to get up once more to the thought that there’s a (Financial institution of Japan) coverage threat going into the July assembly … Given the rising inflation backdrop in Japan, the market is beginning to change into extra cautious that maybe a coverage tweak might come.”

Elsewhere, the euro was flat at $1.1004, the Australian greenback slipped 0.2% to $0.6665, whereas the New Zealand greenback fell 0.5% to $0.6181 forward of the Reserve Financial institution of New Zealand coverage choice on Wednesday.