US dollar rises; Australian dollar weakens

1 Mar 2023 , 08:50 AM

The US dollar started the month on a rising note as the possibility of higher U.S. interest rates for longer period took center stage. The Australian dollar, on the other hand, fell as a slew of economic indicators pointed to a slowing economy and indications that inflation may have peaked.

Other data released on Wednesday revealed that Australia’s economy expanded at its slowest rate in a year in the fourth quarter and that monthly consumer prices increased less than anticipated in January.

Following the release of the data, the Australian dollar plunged to a two-month low and last traded 0.47% lower at $0.6697.

Even though inflation in two of the euro zone’s largest economies unexpectedly increased in February, the euro lost 0.08% of its value to $1.0567, failing to gain against the dollar in the previous session. This increased expectations for a rate hike by the European Central Bank (ECB).

Sterling dropped 0.02% to $1.2015, reversing a 1% gain at the beginning of the week after Britain reached a post-Brexit trading agreement with the European Union for Northern Ireland.

Tuesday, British Prime Minister Rishi Sunak travelled to Northern Ireland before holding a meeting with his own legislators to promote the new agreement.

The U.S. dollar index was 0.09% higher at 105.07 against a basket of currencies after increasing by almost 3% in February, its first monthly increase since last September.

As the Federal Reserve fights to control inflation, the durability of the largest economy in the world, supported by a deluge of positive economic data reported in recent weeks, has increased market expectations of a higher peak in U.S. interest rates.

The Fed funds rate is expected to reach a top of about 5.4% by September, according to current futures pricing.

In other news, the dollar increased 0.12% to 136.38 Japanese yen from where it jumped about 5% in February, its biggest monthly rise since last June.

Later on Wednesday, China is scheduled to release its official February manufacturing PMI, and it is anticipated that industrial activity in the second-largest economy in the world grew steadily in February.

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