SINGAPORE – The dollar bounced from a one-year low on Monday as resilience in core US retail sales, a rise in short-term inflation expectations and impressive Wall Street bank earnings raised market expectations for an interest rate hike in May.
While US. retail sales fell more than expected in March, so-called core retail sales, which excludes automobiles, gasoline, building materials and food services, slipped just 0.3 percent last month, data released on Friday showed.
Adding to the mix of resilient US. economic data was a strong run of first-quarter 2023 earnings from JPMorgan Chase & Co., Citigroup Inc. and Wells Fargo & Co., brushing off concerns about a banking crisis that unfolded in March.
Against a basket of currencies, the US. dollar index rose 0.15 percent to 101.82, standing some distance away from Friday’s one-year low of 100.78.
Friday marked the fifth straight weekly loss for the index.
The euro fell 0.2 percent to $1.0965, while sterling slipped 0.22 percent to $1.2387.
“The US. bank earnings came out much better than expectations, which suggests that the US. economy is not so bad … So I think that will increase (expectations) for the Fed to continue raising interest rates,” said Tina Teng, market analyst at CMC Markets.
Money markets are now pricing in a roughly 81 percent chance that the Federal Reserve will raise interest rates by 25 basis points next month, up from about a 69 percent chance last week.
Short-term inflation expectations have also increased, with the University of Michigan’s preliminary April reading showing that one-year inflation expectations rose to 4.6 percent from 3.6 percent in March.
Yields on US. Treasuries jumped in the wake of the data releases on Friday, and remained elevated on Monday.
The two-year US. Treasury yield, which typically moves in step with interest rate expectations, stood at 4.1137 percent, after hitting a roughly two-week top of 4.137 percent on Friday. – Reuters
