Dollar Surges on Strong US Data, Fed Rate Cut Bets Fade

19 Apr 2024 , 12:04 PM

As investors' and policymakers' expectations of the trajectory of Federal Reserve rate cuts this year have been pushed back by a hotter-than-expected U.S. economy, the resurgent dollar headed towards a second straight week of gains on Friday.

The minor halt in the greenback's surge since Thursday, which followed a rare trilateral warning from the finance chiefs of the US, Japan, and South Korea over the latter two's declining currencies, raised the possibility of a possible joint intervention, somewhat limited the currency's 0.17% weekly gain.

That's when the strength of the dollar puts a great deal of pressure on Asian currencies in particular.

The yen is currently trading at 154.61 against the dollar, close to a 34-year low and just below the 155 mark, which traders view as a fresh line in the sand that might signal Tokyo's involvement.

The Japanese yen was headed for a weekly loss of over 0.8% and has already lost 2% of its value for the month. The Bank of Japan (BOJ) will be meeting next week to discuss monetary policy.

BOJ Governor Kazuo Ueda highlighted the potential influence of currency fluctuations on the timing of the next policy change on Thursday when he stated that the central bank may boost interest rates once more if the yen's losses considerably increase inflation.

Sterling dropped 0.08% to $1.2427 elsewhere, on course to lose 0.18% for the

In other news, the value of sterling dropped 0.08% to $1.2427, putting it on track to lose 0.18% this week. With a 0.06% decrease to $1.0637, the euro was expected to record a little weekly loss.

Trader expectations are that the European Central Bank will start its rate-easing cycle in June, which will probably keep the euro weak for a while, even though predictions of a first Fed rate drop have been pushed out to later this year.

The U.S. central bank is now only predicted to cut by roughly 40 basis points (bps) according to Fed funds futures, which is a considerable retreat from the 160 bps of easing that was anticipated at the beginning of the year.

The change in rate expectations is the result of persistently high inflationary pressures combined with a plethora of strong U.S. economic data points that have consistently outperformed forecasts.

Due to this, Fed policymakers have also retreated from wagers that the US will lower interest rates as early as June. Chair Jerome Powell made a similar statement earlier this week, stating that restrictive monetary policy is necessary for an extended period of time.

The dollar gained 0.05% against a group of currencies to 106.22, staying close to its peak of 106.51, which was reached more than five months ago.

With a weekly decline of more than 0.8% in sight, the Australian dollar dropped 0.15% to $0.6411.

The relatively tight labour market was still expected to loosen, albeit more slowly, as seen by data released on Thursday showing that domestic employment decreased in March following a huge increase in the previous month, while the unemployment rate continued to rise.

With a 0.1% decline to $0.5895, the New Zealand dollar was on course to lose 0.7% for the week.

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