Dollar declines marginally in early trade

12 May 2023 , 08:53 AM

As a slew of overnight data  indicated a slowing U.S. economy, the U.S. dollar clung to a more than one-week high on Friday, with investors betting that the Federal Reserve will further stop its interest rate increases.

The dollar index, which compares the value of the dollar to six rival currencies, declined 0.059% to 102.02, not far from the overnight high of 102.15, its highest level since May 2. With a 0.7% increase this week, the index is expected to end a two-week losing run.

According to data released on Thursday, the number of Americans submitting new claims for unemployment benefits increased to a 1-1/2-year high last week, signalling cracks in the labour market as demand weakens. The same data also revealed that producer prices moderately increased in April.

The reports were thought to be in line with most experts’ predictions of a recession by year’s end.

According to the CME FedWatch Tool, markets are currently pricing in a 98% chance that the Fed will hold steady at its June meeting but have already begun to price in significant interest rate decreases by the end of the year. Rate futures contracts indicate that traders anticipate the Fed to begin reducing rates in September.

Neel Kashkari, president of the Minneapolis Federal Reserve, stated on Thursday that prolonged periods of high interest rates and an inverted yield curve may place additional strain on banks, but that they may be essential if inflation continues to rise stubbornly.

Before their next meeting, the Fed’s policymakers have around five more weeks of data to analyse, and they have stated that they will carefully sort through it before reaching a decision.

The Japanese yen gained 0.03% to 134.53 per dollar, while the euro increased by 0.03% to $1.0917.

To $0.670, the Australian dollar declined by 0.01%. The kiwi dropped to $0.628 by 0.24%.

After falling 0.6% on Thursday, the value of the pound was last trading at $1.2512, up 0.02% for the day.

In an effort to reduce the highest inflation of any major country, the Bank of England increased its benchmark interest rate by a quarter of a percentage point to 4.5% on Thursday. Governor Andrew Bailey vowed that the British central bank will ‘stay the course’ in this endeavour.

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