Dollar rises in early trade

21 Apr 2023 , 08:35 AM

As chances for another rate hike by the U.S. Federal Reserve in May grow, the dollar was on track to post its first weekly gain in more than a month on Friday. However, its gains were limited by weak economic data that indicated a weakening economy.

With a key index reaching a four-decade high, Japan’s consumer inflation continued to rise in March, keeping it over the central bank’s target. This placed pressure on the Bank of Japan (BOJ) to change its ultra-loose monetary policy stance.

Although it increased against other major currencies in early Asian trading, the dollar fell versus the Japanese yen. The U.S. dollar index edged up 0.06% to 101.84.

Following five weeks of losses, the index, which compares the value of the dollar to six important rivals, was expected to increase by more than 0.2% this week.

The dollar has received some support from rising expectations that the Fed would increase interest rates by 25 basis points in May. According to the CME FedWatch tool, the probability of such a hike occurring next month has increased from 67% to 84.5% in the money markets.

The euro dropped 0.03% to $1.0967 against the dollar, while the pound dropped 0.09% to $1.24325.

Gains in the dollar were, however, limited as mounting recession fears were fuelled by U.S. data that was revealed on Thursday.

The number of Americans submitting new applications for unemployment benefits grew slightly last week, signalling a weakening of the labour market. In a separate study, the Philadelphia Fed revealed that in April, its indicator of factory activity in the mid-Atlantic region fell to its lowest level in almost three years.

With statistics released on Friday showing that Japan’s core consumer price index grew 3.1% in March compared to a year earlier and that an index excluding fuel prices rose at the quickest annual rate in four decades, the country’s economy was also displaying symptoms of expanding price pressures.

At 134.13, the dollar was recently 0.07% weaker versus the yen.

With all eyes now on next week’s BOJ policy meeting, the first to be presided over by new central bank Governor Kazuo Ueda, Friday’s data may maintain market hopes that the BOJ will gradually wind down its enormous stimulus programme later this year.

Other currencies showed the Australian dollar last down 0.07% at $0.6738 and the New Zealand dollar last down 0.12% at $0.61705.

Consumer price inflation in New Zealand was less than anticipated in the first quarter, according to data released on Thursday, albeit it was still close to historic highs.

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