US dollar gains before Fed meeting, inflation data

THE US dollar bounced off two-week lows on Friday (Jun 9) as investors awaited inflation data and the Federal Reserve’s interest rate decision next week for any new clues on how high the US central bank is likely to hike rates.

The Fed is expected to hold rates steady at its Jun 13 to Jun 14 meeting, but is likely to remain hawkish and indicate a probable hike in July as inflation stays above its 2 per cent target.

“They still think they need to do more, and also I would suspect they will continue to discourage expectations of policy easing,” said Vassili Serebriakov, an FX strategist at UBS in New York.

The Fed is expected to revise higher its “dot plot” of policymakers’ rate expectations and inflation projections, “so in that sense, I think the Fed will remain hawkish”, Serebriakov said.

Data due on Tuesday is expected to show headline inflation rose at an annual rate of 4.1 per cent in May, while core prices gained 5.3 per cent.

The euro was last down 0.3 per cent against the US dollar at US$1.0749. The greenback gained 0.34 per cent at 139.40 yen.

The US dollar index, which measures the currency against six major peers, rose 0.22 per cent to 103.53.

The greenback is largely rangebound as investors wait for clearer signs of whether the economy will remain strong and inflation elevated, or if it is headed towards a contraction.

Data on Thursday showed the number of Americans filing new claims for unemployment benefits surged to the highest in more than one-and-a-half years last week.

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US dollar slips from near three-month highs as traders gauge rate outlook

Last Friday, May jobs data showed employers added 339,000 jobs, more than expected, but unemployment rose to a seven-month high of 3.7 per cent.

“This jump put jobless claims close to a two-year high, and has been read by markets as a clear sign of coming weakness in the US economy and a more-hesitant-to-hike Fed,” CaxtonFX strategist David Stritch said.

The European Central Bank (ECB) and Bank of Japan (BOJ) are also due to meet next week. The ECB is expected to raise eurozone rates by 25 bps to 3.50 per cent on Thursday, while the BOJ is likely to leave rates unchanged after its two-day meeting on Friday.

The Bank of Canada and Reserve Bank of Australia jolted markets earlier this week by raising interest rates to tackle stubborn inflation.

The Norwegian krone gained sharply after data showed Norway’s core inflation rate jumped to a record high in May. Core inflation, which strips out changing energy prices and taxes, rose 6.7 per cent year on year, up from 6.3 per cent in April and exceeding the 6.2 per cent average forecast among analysts polled by Reuters.

The greenback fell 1.34 per cent to 10.76 krone, the lowest since May 17. REUTERS