Gertrude Chavez-Dreyfus
NEW YORK (Reuters) – The dollar rose to a more than one-week high on Friday after a mixed batch of data showed the U.S. economy remained stable with small pockets of weakness, suggesting the Federal Reserve could keep interest rates high longer or reduce them. the planned number of rate cuts this year.
The index, which tracks the U.S. currency against six major currencies, was on track to post a 0.7% weekly gain, its biggest since mid-January. The index was last unchanged at 103.43.
Data on Friday showed a strong US manufacturing sector, with output rebounding 0.8% last month after a downwardly revised 1.1% decline in the previous month. Citi analysts, however, said in a research note that the recovery in February partly reflected a downward revision to January output and a reversal of “January’s weather-related decline in non-durable goods sectors.”
US consumer sentiment and inflation expectations were little changed in March, a survey showed on Friday. The University of Michigan’s preliminary overall consumer sentiment index came in at 76.5 this month, down from a final reading of 76.9 in February.
According to the survey, annual inflation expectations (an indicator tracked by the Federal Reserve) remained unchanged at 3.0% in March. The five-year inflation forecast also remained stable at 2.9% for the fourth month in a row, according to the survey.
The Fed is scheduled to meet next week, and while it is not expected to make any changes to interest rates, hotter-than-expected U.S. producer and consumer price data this week have traders reining in bets on future cuts.
“There’s nothing ahead of the meeting to suggest the Fed can afford to be dovish at this point,” said Eugene Epstein, head of North American structuring at Moneycorp in New Jersey.
“That’s why we have Treasury yields rising, and that’s why we have a stronger dollar. Gold also fell. These are all standard correlations. Later.”
The interest rate futures market on Friday pegged the likelihood of a Fed cut in June at 57%, up from 71% on Monday, according to rate probability app LSEG. The market has also reduced the number of rate cuts expected this year to fewer than three from three to four earlier this year.
Investors are also looking ahead to the much-anticipated Bank of Japan meeting next week.
The Bank of Japan is close to ending its eight-year policy of negative interest rates, with internal preparations for an exit underway since Kazuo Ueda took over as BOJ governor.
At the same time, Japan’s biggest companies on Friday agreed with unions to raise wages to their highest level in 33 years, fueling views that the country’s central bank is poised to make a landmark shift away from negative interest rates.
The dollar continued to rise against the yen, rising 0.5% to 149.02. The dollar rose 1.3% over the week, its biggest gain since mid-January.
The focus is also on other decisions by central banks, looking for signs of how quickly they will cut interest rates after a period of rapid growth to curb runaway inflation. The Bank of England and the Swiss National Bank are due to meet next week.
The euro rose slightly to $1.0889. The European Central Bank’s board last week began discussing when to cut its own rates, board member Olli Rehn said on Friday.
Sterling fell 0.1% to $1.2737.
In cryptocurrencies, bitcoin prices fell as much as 7% in volatile trading from a record high hit on Thursday as risk sentiment took a hit. It was last down 0.3% at $70,483.