Investing.com – The U.S. dollar rose sharply in European trading on Friday after a surprise rate cut by the Swiss National Bank cast the Federal Reserve in a more hawkish light.
At 04:00 ET (0900 GMT), the dollar index, which tracks the U.S. dollar against a basket of six other currencies, was trading 0.4% higher at 104.085, near a three-week high and on track for a second. week of growth. .
The US economy is on solid footing
It was the biggest surprise in a week filled with central bank meetings, interest rate cuts and explanations for the franc’s strength.
The Swiss franc, the G10’s best-performing currency in 2023, fell more than 1% overnight and continued to fall on Friday, rising 0.4% to 0.9009, approaching parity.
The move prompted traders to reassess the Fed’s likely future actions after this week’s FOMC meeting, in which officials confirmed the likelihood of three interest rate cuts this year, economic data permitting.
The U.S. central bank also sharply raised its growth forecast for 2024, and data on Thursday showed the U.S. economy remains on solid footing after the number of Americans filing for unemployment benefits unexpectedly fell last week while sales previously owned vehicles have increased the most over the past year. year in February.
This suggests that the Fed does not need to rush to cut rates in the future.
However, “the dollar jump appears excessive,” ING analysts said in a note.
“Earlier this week, the Federal Reserve sent a pretty clear signal: some resilience in economic activity data would not be a barrier to tapering as long as inflation is on a downward path.”
Bank of England rate cut expectations are not ‘unreasonable’
In Europe, the index fell 0.5% to 1.2588, falling to a one-month low after leaving interest rates unchanged on Thursday, but two MPC members dropped their calls for rate hikes as inflation eases.
Expectations of interest rate cuts this year were not “unfounded”, according to Bank of England Governor Andrew Bailey, the Financial Times reported on Friday.
“Markets are largely taking this as an admission that cuts are around the corner,” ING added, and is now increasingly convinced the Bank of England will start easing in June (20bp price) and is also starting to speculate on May moves (7 bps). the price is indicated)”.
traded 0.4% lower at 1.0814, with data on economic activity in the eurozone continuing to paint a gloomy picture for the outlook for the region’s manufacturing sector.
The European Central Bank may be able to cut interest rates ahead of the summer holiday, possibly in June, as inflation returns to the bank’s 2% target, Bundesbank President Joachim Nagel said on Friday.
The comments add Nagel to a long list of policymakers likely to back a rate cut in June and suggest the ECB will become the second major central bank, after its Swiss counterpart, to begin unwinding a record string of rate hikes.
Yen close to four-month low
traded marginally below 151.59, near its highest level in four months, with the yen suffering sharp losses overnight.
rose 0.2% to 7.2297, breaking above 7.2 for the first time since November 2023, following reports that the PBOC was selling dollars and buying yuan on the open market to support the Chinese currency.
fell 0.8% to 0.6515, with risk sentiment weakening.