SINGAPORE- The dollar was catching its breath on Monday after dropping last week when the Federal Reserve hinted at an end to the US rate increase cycle, with traders turning their focus to US inflation and bank lending data for the week ahead.
Sterling, which hovered at $1.2633, just below an 11-month high hit on Friday, was also in traders’ minds ahead of an expected Bank of England rate increase on Thursday.
The euro, which has rallied nearly 16 percent from September lows, was losing a little bit of momentum at $1.1021 and has struggled to break resistance at $1.11.
The yen slipped slightly, reflecting Friday’s move higher in US bond yields that followed strong jobs data.
The dollar/yen was last 0.2 percent higher at 135.05.
Last week the Federal Reserve and the European Central Bank each raised rates by 25 basis points and offered varying degrees of caution about the outlook, which markets took as signals that rate rises are slowing or stopping.
US interest rate futures : are pricing about a one-third chance of a rate cut as soon as July, according to the CME FedWatch tool – even though stronger-than-forecast US jobs data released on Friday suggests that might be premature.
“The Fed has tended to guide away from the possibility of rate cuts this year, which is somewhat at odds with a rates market which is pricing in cuts,” HSBC analysts said in a note.
“If the Fed is proved right over the course of 2023, then it will make it harder for the dollar decline to extend,” the analysts wrote. “But for the time being, the market is likely to run with the theme of a peak in Fed rates justifying a clear peak in the dollar.” – Reuters
