Dollar strengthens in early Asia on the back of “hawkish” Fed expectations

Singapore ( – The US dollar strengthened to near six-month peaks against the yen in early Asia on Friday, supported by rising government bond yields as optimism over debt ceiling talks in Washington raised expectations of higher (hawkish) interest rates for a longer term. long.

President Joe Biden and top Republican US congressman Kevin McCarthy earlier this week underscored their determination to reach a deal quickly to raise the government’s debt ceiling by $31.4 trillion, with hopes of finalizing the deal after Biden returns from a Group of Seven (G7) meeting. in Japan on Sunday (21/5/2023).

The news helped ease fears of an unprecedented American debt default and economic disaster, leading markets to revise their expectations of where US interest rates are headed.

At the same time, data showing the labor market remains tight, with the number of Americans filing new claims for unemployment benefits falling more than expected last week, also reinforced expectations that the Federal Reserve could deliver another rate hike next month in a bid. to tame inflation.

Two Fed policymakers also said Thursday that US inflation does not appear to be cooling fast enough to allow the Fed to drop its rate hike campaign.

The dollar remained high in early Asian trading on Friday and was last buying 138.40 yen, having climbed near a six-month high of 138.75 yen in the previous session.

greenback eyeing a weekly gain of nearly 2.0 percent against the Japanese currency, the most since February.

Similarly, the US dollar index was last at 103.46, nearing Thursday’s two-month high of 103.63, and headed for a second straight weekly gain of more than 0.7 percent.

“Optimism about (talks of) a debt ceiling has contributed to repricing for the Fed … the fact that (the deal) will take a huge load off the economy, effectively,” said Ray Attrill, head of foreign exchange strategy at National Australia Bank (NAB).

“That removes one barrier for the Fed to continue raising interest rates.”

Money markets are now pricing in a 39 percent chance that the Fed can raise rates by another 25 basis points next month, compared with about a 10 percent chance a week ago, according to the CME FedWatch tool.

Traders also slashed expectations on the scale of rate cuts expected later this year, with rates expected to be just above 4.6 percent in December.

US government bond yields have risen supported repricing the feds hawkish and amid improving risk sentiment. Yields rise when bond prices fall.

The yield on the two-year bond, which usually moves in line with rate expectations, held at 4.2581 percent, away from a low of 3.964 percent earlier in the week. The yield on 10-year Treasury bonds was last at 3.6476 percent, up nearly 20 basis points this week.

In other currencies, the euro was up 0.06 percent to $1.0777, but was weaker in the previous session’s close to a two-month low of $1.07625.

Sterling rose 0.05 percent to $1.2415, after falling around 0.6 percent on Thursday (18/5/2023).

The Aussie rose 0.17 percent to $0.6633, after sliding Thursday against a stronger dollar and data showing that Australian employment unexpectedly fell in April.

In Asia, Japan’s core consumer prices rose 3.4 percent in April from a year earlier as price increases widened, data showed on Friday, casting doubt on the central bank’s view that inflation will slow back below its target of 2.0 percent later this year due to pressure. costs disappear.

“I think the numbers mean that the June and July meetings are underway for a possible YCC change,” Attrill NAB said, referring to the Japanese central bank’s controversial yield curve control policy.

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Translator: Apep Suhendar
Editor: Faisal Yunianto


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