Dollar gains as higher-for-longer U.S. rate views drive currency markets

Singapore, Feb 27 (BNA): The dollar held near a seven-week peak on Monday, after a series of strong US economic data reinforced the view that the Federal Reserve will have to raise interest rates more and for a longer period.

Data on Friday showed that US consumer spending rebounded sharply in January, while inflation accelerated. The personal consumption expenditures price index, the Fed’s preferred measure of inflation, rose 0.6% last month after rising 0.2% in December.

The dollar index, which measures the greenback against six major peers, rose 0.038% to 105.21, close to a seven-week high of 105.32 touched on Friday after hotter-than-expected data was released, Reuters reported.

The index rose 3% for the month of February and is set to experience four straight months of losses as investors revise their expectations that US interest rates will stay higher for longer.

The market price now peaked at 5.4% in July and remains above 5% until the end of the year.

“We are in a bit of a nervous environment,” said Moh Seong Sim, currency analyst at Bank of Singapore, adding that the market is uncertain about the future pace of interest rate hikes by the Fed.

“Whether (the Fed) can sustain a 25 basis point increase? Or is it going to have to pick up the pace? So I think those are the questions that the market is grappling with,” Sim said.

“There is no clear answer at the moment.”

Fed policymakers speaking on Friday weren’t pushing for a return to last year’s massive interest rate hikes, suggesting central bankers for now are content to stick to a gradual tightening path despite signs that inflation isn’t abating as they had hoped. .

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The Fed raised interest rates earlier this month by 25 basis points and is expected to rise by the same margin at its March 21-22 meeting, although some analysts see the possibility of a 50 basis point hike if inflation remains high and growth remains the same. strong.

“We now think it’s a much closer call for officials to increase by 50 basis points in March than our previous assumption of 25 basis points,” said Kevin Cummins, chief economist at NatWest Markets. “We put the odds at about 60% that the FOMC increases by 50 basis points.”

The markets also raised potential interest rates for the European Central Bank and the Bank of England.

The two-year US Treasury yield, which is usually in line with interest rate expectations, rose 3.4 basis points at 4.839%, just below the three-month high of 4.840% touched on Friday.

The euro settled near its lowest level in seven weeks at $ 1.0536, which it recorded on Friday. The British pound was last at $1.1943, down 0.01% on the day.

The Japanese yen rose 0.12% to 136.29 per dollar, after falling to a two-month low of 136.58 earlier in the session.

Incoming Bank of Japan Governor Kazuo Ueda said on Monday that the benefits of the bank’s current monetary policy outweigh the costs, stressing the need to maintain support for the country’s economy with ultra-low interest rates.

The Australian dollar fell 0.25% at $0.671, after touching a two-month low of $0.6705. The kiwi fell 0.28% against the dollar, at $0.614.

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