Dollar strengthens in early trade

3 Apr 2023 , 08:55 AM

The Federal Reserve may need to raise interest rates at its next meeting, traders speculate, as concerns over inflation revived following a surprising announcement by major oil producers to cut production even more.

The Organization of the Petroleum Exporting Countries (OPEC) and its allies, also known as OPEC+, made the announcement after data on Friday revealed that U.S. consumer spending increased moderately in February after surging the previous month, with inflation showing some signs of cooling even though it remained high.

The Japanese yen declined 0.04% to 132.86 per dollar, while the euro fell 0.25% to $1.0812, close to a one-week low. Sterling hit a one-week low of $1.22825 earlier in the session and was trading at $1.2305, down 0.22% on the day.

The dollar index, which compares the value of the dollar to six other currencies, was recently at 102.77 and is at the verge of crossing the 103 mark for the first time in a week.

On Monday, the OPEC+ reduction immediately led to more than 6% hikes in oil prices.

The reductions were made public even before a virtually convened meeting of the OPEC+ ministerial panel, which included Saudi Arabian and Russian delegates, and which was anticipated to maintain the 2 million barrels per day (bpd) reductions already in place until the end of 2023.

Instead, the oil producers stated Sunday that they would be reducing output by an additional 1.16 million bpd.

The two-year U.S. Treasury yield increased by 2.7 basis points to 4.089%, which is normally in line with expectations for interest rates. Ten-year Treasury yield increased by 2.1 basis points to 3.511%.

The likelihood that the Fed will increase interest rates by a quarter point in May has increased from 48% on Friday to 61% according to the markets. Nonetheless, expectations are built in for reduction of 40 basis points by year’s end.

Australian dollars that are susceptible to risk decreased 0.21% to $0.667. The kiwi dropped to $0.622 by 0.54%.

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