New York, March 1 (BNA): The dollar rose against major currencies in volatile trading on Tuesday, on track for its first monthly gain since September on views that interest rates will remain high for some time as inflation continues to rise, while recession fears kept investors out. On the edge of the abyss.
Recent upbeat data, such as a strong January employment report, helped the dollar rally in February on expectations that the Federal Reserve will have to raise interest rates higher and for longer than the market had previously expected to fight inflation, Reuters reports.
US interest rate futures are priced into the Fed’s target policy rate that peaked at 5.4% in September, while this year’s interest rate cuts are priced in largely unchanged. The Fed’s policy rate is currently in the 4.50%-4.75% target range.
The dollar index, which measures the currency against a basket of other currencies, was up 0.22% at 104.88 at 3:20 PM ET (20:20 GMT), on track for a monthly gain of 2.7%.
Meanwhile, data on Tuesday showed signs that the Fed’s rate hikes are starting to have the intended effect of cooling an overheating economy, which slightly affected the dollar.
“Amidst a sea of disappointing news, US consumer confidence data released this morning was very cool, favorable to fighting inflation, but at a significant implicit cost, a decline in consumer spending that accounts for about 70% of the country’s GDP,” said Jose Torres, chief economist. at Interactive Brokers.
US Consumer Confidence fell unexpectedly in February, falling to 102.9 from a reading of 106 in January. Economists polled by Reuters had expected the index to reach 108.5.
Another report showed that US single-family home prices rose at their slowest pace in December since the summer of 2020, with the S&P CoreLogic Case Shiller National Home Price Index rising 5.8% year over year.
The Chicago Business Purchasing Managers’ Survey for February also came in weaker than expected.
The market is awaiting the February employment data on March 10 and the CPI on March 14, both of which could influence the Fed’s interest rate policy.
said Vasily Serebryakov, forex strategist at UBS.
The dollar earlier on Tuesday hit a more than two-month high against the Japanese yen, rising to 136.93 yen, before reversing gains after US data. The dollar was last down 0.06% against the yen at 136.15.
Japan’s policy of keeping yields steady means that the yen is sensitive to moves elsewhere. Incoming Bank of Japan Governor Kazuo Ueda said this week that it is too early to comment on how the central bank might change its policy.
On Tuesday, the new deputy governor, Shinichi Uchida, brushed off the opportunity to immediately reform the Bank of Japan’s ultra-loose monetary policy.
The Japanese yen also fell to its weakest level in two months against the euro and the pound.
Elsewhere, the euro fell 0.25% against the dollar, to $1.0583. Earlier, he got some support from higher-than-expected French inflation data, which sent eurozone short-term yields to their highest levels in at least a decade.
Meanwhile, the pound sterling gave up some of its gains from the previous session against the dollar, falling 0.09% to $1.2052.
It rose 1% on Monday after Britain and the European Union announced a new deal for post-Brexit trade arrangements for Northern Ireland, known as the Windsor Framework.
This has brightened expectations for the UK’s post-Brexit economy, with British Prime Minister Rishi Sunak saying it will pave the way for a new chapter in London’s relationship with the bloc.