New York, May. 1 (Us): The dollar rose to a nearly two-week high against a basket of currencies on Monday before the Federal Reserve raised interest rates by an additional 25 basis points and after data showed that US manufacturing fell by a three-year low in April.
Investors will focus on whether the US central bank signals it expects to pause interest rate increases after May, or if it survives the prospect of an additional hike in June or later when it wraps up its two-day meeting on Wednesday, Reuters reported.
“A lot of people are saying the Fed is going to signal that they’re going to pause, and I don’t think they can do that,” said Mark Chandler, senior market analyst at Bannockburn Global Forex in New York, adding that “the Fed wants to do that.” Maintain some electives and flexibility.
Inflation is seen as likely to keep the Fed in a tightening cycle if it remains elevated, assuming the labor market and other parts of the economy remain strong.
The dollar rose after the Institute for Supply Management said Monday that its manufacturing purchasing managers’ index rose to 47.1 last month from 46.3 in March, the lowest reading since May 2020.
“Overall, the data shows that the manufacturing sector remains in the doldrums, but there are some encouraging signs of stabilization in the details,” Thomas Simmons, money market economist at Jefferies, said in a note.
Other data on Monday showed that construction spending in the United States rose more-than-expected in March, supported by investment in non-residential structures, but construction of single-family homes remained subdued amid rising mortgage rates.
The dollar rose on Friday after data showed that core inflation remained high in March. Consumer inflation data next week will be watched for further indications that inflation will continue to rise.
The jobs data on Friday is the main economic focus for this week. It is expected to show that employers added 180,000 jobs in April.
The dollar index rose in the latest trading today, by 0.41%, at 102.13, after reaching 102.19, the highest level since April 19. The euro fell 0.43% to $1.0970. The single currency is holding just short of the one-year high of $1.1096 reached last Wednesday.
The European Central Bank is widely expected to raise interest rates for the seventh consecutive meeting on Thursday, with a 50 basis point increase on the table.
The yen continued to weaken against the dollar after the Bank of Japan on Friday kept interest rates very low but announced a plan to review its previous moves in monetary policy.
The dollar was last up 0.84% at 137.46 yen, the highest level since March 8. It is also widely expected that the RBA will extend its interest rate moratorium on Tuesday.
The Australian dollar rose 0.20% to $0.6630. It is up from a seven-week low of $0.6573 on Friday. Volumes were thin on Monday with markets closed in many countries for the Labor Day holiday.