The Fed is likely to avoid the possibility of a rate cut this year, which is somewhat at odds with rate markets pricing in a cut
SINGAPORE (Armfalcon.com) – The dollar was “breathing” in early Asia on Monday morning, after dropping last week when the Federal Reserve signaled it would end its US interest rate hike cycle, with traders shifting their focus to US inflation and bank lending data for the week front.
Sterling, which was holding at $1.2633, just below an 11-month high Friday, is also on the cards for traders ahead of the Bank of England’s rate hike expected Thursday. .
The euro, which has gained nearly 16 percent from its September lows, lost a bit of momentum at $1.1021 and has struggled to break resistance at $1.11.
The yen slipped slightly, reflecting Friday’s (5/5/2023) move higher in US bond yields following strong jobs data.
Dollar/yen was last 0.2 percent higher at 135.05.
Last week the Federal Reserve and European Central Bank each raised interest rates by 25 basis points and offered varying degrees of caution about the outlook, which markets took as a signal that rate hikes are slowing or stopping.
US interest rate futures price about a one-third chance of a rate cut soon after July, according to CME’s FedWatch tool – although stronger-than-expected US jobs data released on Friday (5/5/2023) suggests that may be premature.
“The Fed is likely to shy away from the possibility of a rate cut this year, which is somewhat at odds with the rate market pricing for a cut,” HSBC analysts said in a note.
“If the Fed proves to be right throughout 2023, then it will make it more difficult for the dollar’s slide to extend,” the analysts wrote. “But for now, the market will likely go with the theme of a Fed rate peak justifying a clear peak in the dollar.”
The US dollar index fell for the second straight week last week, down about 0.4 percent. The Antipodean currency also posted solid gains last week, but remains lacking clear breakouts into new territory.
The Australian dollar was steady at US$0.6749 in early trade but faced a headwind around US$0.68. The New Zealand dollar was last at US$0.6298, with resistance around US$0.6365.
Late Monday, a lending survey from the Fed may show whether and how hard banks are tightening credit after three US lenders failed over the past few weeks – which could weigh on the dollar if it puts pressure on interest rates.
Traders will also be watching for headlines from Capitol Hill as lawmakers try to negotiate an impasse over the looming US debt ceiling, with the Treasury Secretary warning the government may not be able to pay debts by June 1.
US inflation data will be released on Wednesday (10/5/2023).
“There is a risk that regional bank troubles could escalate, pose broader risks to the financial system and drive the (higher) dollar,” said Standard Chartered’s G10 head of forex research, Steve Englander.
“However, the resilience of the big banks makes that unlikely, in our view,” Englander said. “We think that escalating debt ceiling concerns are a more likely source of strength risk-off dollars through an immediate demand for dollar liquidity.”
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Translator: Apep Suhendar
Editor: Click Dewanto
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