Dollar stabilizes in early trade

8 May 2023 , 08:54 AM

After falling last week when the Federal Reserve signaled that the cycle of rate increases in the United States might be coming to an end, the dollar recovered on Monday as traders turned their attention to data on U.S. inflation and bank lending for the coming week.

In anticipation of an anticipated Bank of England rate increase on Thursday, traders were also thinking about sterling, which was trading at $1.2633, slightly below an 11-month peak achieved on Friday.

The euro, which has gained about 16% from its September lows, was a little bit losing steam at $1.1021 and has found it difficult to break above $1.11 support.

The yen slightly declined as a result of Friday’s increase in U.S. bond yields in response to positive jobs news.

At 135.05. the dollar/yen was recently 0.2% higher.

Rates were increased by 25 basis points last week by the Federal Reserve and the European Central Bank, respectively. Both institutions also expressed varied degrees of concern about the outlook, which the markets interpreted as a hint that rate increases are slowing or ceasing.

According to the CME FedWatch tool, U.S. interest rate futures are pricing approximately a one-third possibility of a rate cut as early as July, even if stronger-than-expected U.S. jobs data reported on Friday suggests that may be premature.

Last week, the U.S. dollar index fell for the second consecutive week, losing around 0.4%. The currencies of the Antipodes also made significant increases last week, although they are still lacking in notable breakthroughs into uncharted territory.

The Australian dollar saw resistance around $0.68 but held stable at $0.6749 in early trade. With resistance located at $0.6365, the New Zealand dollar maintained steady around $0.6298. 

After three U.S. institutions collapsed in recent weeks, the Fed’s loan officer survey could reveal later on Monday if and to what extent banks are tightening credit policies. If interest rates fall as a result, this could hurt the dollar.

The Treasury Secretary’s warning that the country would not be able to pay debts by June 1 will likely cause traders to keep an eye on headlines coming out of Capitol Hill as lawmakers attempt to break an impasse over the approaching U.S. debt ceiling.

On Wednesday, reports on US inflation are expected.

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