NEW YORK – The US dollar was little changed to slightly higher against major currencies as business activity data suggested that the world’s largest economy remained resilient, supporting expectations of another 25-basis-point interest rate increase by the Federal Reserve at next month’s policy meeting.
Against commodity currencies, the greenback gained as well. Overall, the dollar index was on track for its first weekly gain in nearly two months on rate increase expectations for May.
Data showed on Friday that S&P Global’s flash US Composite PMI Output Index, which tracks the manufacturing and services sectors, increased to 53.5 this month, the highest since May last year and followed a final reading of 52.3 in March. It was the third straight month that the PMI remained above 50, indicating growth in the private sector.
“Although economic activity is cooling, rate differentials are still dollar-supportive, and the US remains the cleanest dirty shirt on the global economic landscape,” said Karl Schamotta, chief market strategist, at Corpay in Toronto.
In the case of the euro, a surprising recovery in the euro zone economy in April underpinned the currency.
The dollar index, which measures the performance of the US currency against six others, was flat at 101.76 and headed for a weekly gain of about 0.2 percent, its first since late February.
The greenback’s outlook, however, remained tilted to the downside as investors braced for the end of the Fed’s tightening cycle. Fed officials though have been at pains to point out that inflation remains uncomfortably high and rates must keep rising.
Money markets on Friday continued to show expectations of a quarter-point US rate hike next month, which is dollar-positive, followed by a pause in June. The rate futures market has also priced in rate cuts this year as the economy slows. – Reuters
