Dollar edges up, heads for third day of gains

New York

THE dollar edged higher against a basket of major currencies on Friday (Mar 25), putting it on track for a third straight day of gains, as crude prices reversed earlier weakness and added to pressure for the US Federal Reserve to be aggressive in combating inflation. After initially declining, oil prices rebounded following a missile attack that hit Saudi Arabia's state-run oil company Aramco's storage facility.

The war in Ukraine and resulting rise in commodity prices has added upward pressure to already high inflation.

The dollar index rose 0.071 per cent, with the euro down 0.11 per cent to US$1.0984.

The greenback is poised for a solid gain. The dollar has benefited from its status as a safe haven and the conflict in Ukraine has driven expectations that the Fed will hike interest rates.

"The one thing everyone can agree upon is inflation is going to be longer lasting and a lot of that will be sticky and that will complicate what central banks do in the end," said Edward Moya, senior market analyst, at Oanda in New York. "You will probably see the dollar lead the charge with rate hikes, Europe will lag and that interest rate differential should provide some support for the dollar."

Joining other analysts that have raised expectations for a more aggressive Fed, Bank of America on Friday said it expects 2 hikes of 50 basis points each at its June and July meetings with "risks" of those being pulled forward into May and June respectively. Citi also revised its Fed policy path higher for rate hikes, expecting 50 bps hikes at the May, June, July and September meetings this year.

Economic data pointed to rising prices and interest rates are starting to crimp some economic activity.

The euro gave up early gains and weakened, and was on pace for its sixth weekly decline in 7, although concerns about an economic slowdown were likely to keep it in a tight range.

The Japanese yen strengthened 0.21 per cent versus the greenback to 122.07 per dollar after hitting a fresh low of 122.43, the weakest in more than 6 years, while sterling was last trading at US$1.3187, up 0.03 per cent on the day. The yen has been under pressure, with the Bank of Japan expected to keep its soft monetary policy in place, in contrast to most other central banks around the globe. REUTERS