Dollar rises in early trade

17 Apr 2023 , 08:25 AM

The dollar recovered from a one-year low on Monday as market expectations of  an interest rate hike in May increased due to the durability of core U.S. retail sales, an increase in short-term inflation predictions, and strong Wall Street bank earnings.

Although the decline in U.S. retail sales in March was worse than anticipated, the decline in so-called core retail sales, which do not include sales of cars, petrol, building supplies or food services, was only 0.3%, according to statistics released on Friday.

Strong first-quarter 2023 earnings from JPMorgan Chase & Co., Citigroup Inc., and Wells Fargo & Co. dispelled worries about a financial crisis that developed in March, adding to the mix of durable U.S. economic data.

The U.S. dollar index increased 0.15% to 101.82 as measured against a basket of currencies, moving away from Friday’s one-year low of 100.78.

The Sterling dropped 0.22% to $1.2387 and the euro sank 0.2% to $1.0965.

The probability that the Federal Reserve will increase interest rates by 25 basis points next month has increased from around 69% to approximately 81%, according to the money markets.

The University of Michigan’s preliminary April reading reveals that one-year inflation forecasts jumped from 3.6% to 4.6%, reflecting a rise in short-term inflation expectations.

Following the data releases on Friday, U.S. Treasury yields increased and held above average on Monday.

After reaching a roughly two-week high of 4.137% on Friday, the two-year U.S. Treasury yield, which normally rises in tandem with interest rate forecasts, was trading at 4.1137%.

The most recent 10-year benchmark yield was 3.5261%.

Raphael Bostic, president of the Atlanta Fed, and Fed Governor Christopher Waller both suggested that the Fed would increase interest rates by another 25 basis points next month, which contributed to rising expectations for interest rates.

In terms of other currencies, the dollar increased 0.16% against the yen to 133.96 as the Bank of Japan continued to be a dovish outlier by keeping interest rates at historically low levels.

Kiwi dipped 0.39% to $0.6186, while the Australian dollar fell 0.19% to $0.6696.

In Asia, a slew of economic data from China due out this week will be closely watched by traders seeking indicators of how the world’s second-largest economy’s recovery is progressing.

China’s exports in March unexpectedly increased 14.8% from a year earlier, breaking a streak of five consecutive months of falls, according to a report released last week.

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