Dollar weakens as traders eye inflation and loans data The dollar started the week on the back foot on Monday, as traders sold it against currencies that may have more room to raise interest rates while waiting for inflation and loans data that could sway the U.S. monetary policy outlook.
The pound
GBPUSD, near an 11-month peak of $1.2652, was also in the spotlight ahead of a likely Bank of England rate hike on Thursday that markets expect to be followed by more.
The euro
EURUSD , which has surged nearly 16% from September lows, gained 0.2% to $1.1042 but failed to break above resistance at $1.11. The Australian dollar hit a three-week high and climbed 0.4% to $0.6774.
The yen
USDJPY was steady at 134.75 per dollar.
Last week the Federal Reserve lifted rates by 25 basis points but sounded less confident than peers on the outlook, dropping guidance about the need for future hikes.
U.S. interest rate futures (0#FF:) are pricing about a one-third chance of a rate cut as soon as July, according to the CME FedWatch tool – even though stronger-than-expected U.S. jobs data released on Friday suggests that might be too soon.
“The Fed has tended to steer away from the possibility of rate cuts this year, which is somewhat at odds with a rates market which is pricing in cuts,” HSBC analysts said in a note.
Dollar falls as traders bet on peak in Fed rates The dollar continued to slide on Monday, as traders bought currencies that may have more scope to raise interest rates, while waiting for inflation and loans data that could influence the U.S. monetary policy outlook.
The U.S. dollar index DXY fell for a second consecutive week last week, shedding about 0.4%, and was down about 0.2% to 101.10 in Asia on Monday. The New Zealand dollar
NZDUSD edged up 0.3% to $0.6313.
The pound
GBPUSD , close to an 11-month high of $1.2652, was also in focus ahead of a probable Bank of England rate increase on Thursday that markets anticipate to be followed by more.
The euro
EURUSD , which has soared nearly 16% from September lows, rose 0.2% to $1.1042 but could not break through resistance at $1.11. The Australian dollar hit a three-week high and advanced 0.4% to $0.6774.
The yen
USDJPY was unchanged at 134.75 per dollar.
Last week the Federal Reserve hiked rates by 25 basis points but sounded less optimistic than peers on the outlook, dropping guidance about the need for future hikes.
U.S. interest rate futures (0#FF:) are pricing about a one-third chance of a rate cut as soon as July, according to the CME FedWatch tool – even though stronger-than-forecast U.S. jobs data released on Friday suggests that might be too early.
“The Fed has tended to avoid the possibility of rate cuts this year, which is somewhat at odds with a rates market which is pricing in cuts,” HSBC analysts said in a note.
“If the Fed is proved right over the course of 2023, then it will make it harder for the dollar decline to extend,” the analysts wrote.
“But for the time being, the market is likely to run with the theme of a peak in Fed rates justifying a clear peak in the dollar.”
Later Monday, the Fed’s loan officer survey might show whether and how much banks are tightening up on credit after three U.S. lenders failed over recent weeks – which could weigh on the dollar if it puts downward pressure on interest rates.
Traders will also be watching headlines from Capitol Hill as lawmakers attempt to negotiate an impasse over the looming U.S. debt ceiling, with the Treasury Secretary warning the government might be unable to pay debts by June 1.
U.S. inflation data is due on Wednesday.
“There is a risk that regional bank issues could escalate, posing a broader risk to the financial system and taking the dollar (higher),” said Standard Chartered’s head of G10 FX research, Steve Englander.
“However, the resilience of big banks makes that unlikely, in our view,” Englander said. “We think that the escalation of debt-ceiling concerns is a more likely source of risk-off dollar strength via demand for immediate dollar liquidity.”