Dollar holds 7-week peak as inflation stays high
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THE dollar held a seven-week peak on Friday (Feb 24), as another round of data showing still-high inflation reinforced expectations that interest rates could stay higher for longer.
Hotter-than-expected data has helped the greenback to strengthen against many of its major peers last week, sending the dollar index up 0.6 per cent at 105.20 to a seven-week high and putting it on track to post its largest weekly gain since late September.
The euro was also on pace to post its biggest weekly loss against the dollar since late September.
Stoking the dollar’s recent surge is the personal consumption expenditures (PCE) price index, tracked by the Federal Reserve for monetary policy, which rose 0.6 per cent last month after gaining 0.2 per cent in December. The PCE price index accelerated 5.4 per cent in the 12 months through January, after rising 5.3 per cent in December.
Consumer spending, which accounts for more than two-thirds of US economic activity, jumped 1.8 per cent last month, according to the Commerce Department.
“Strong US data have completely turned the market in February. Good news has been bad news, with rates and equities selling off and the US dollar up. The US economy seems to be re-accelerating, forcing the Fed to hike more, in a market that was hoping for early Fed pivot,” said Athanasios Vamvakidis, global head G10 FX strategy, at Bank of America in London.
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Fed funds futures traders are now pricing the Fed funds rate to hit a peak of 5.395 per cent in September, and expect it to stay above 5 per cent for the year, compared with the current target rate of 4.5 to 4.75 per cent. The markets have also priced in rate hikes over the next three meetings.
Against the yen, the dollar hit a two-month high and was last up 1.3 per cent at 136.41 yen. The US currency also rose to its strongest level in seven weeks versus the Swiss franc following the data. The dollar last traded at 0.9406 francs, up 0.7 per cent.
The euro was last down 0.39 per cent against the greenback at US$1.0549, after falling to a seven-week low of US$1.0536 earlier in the session. Sterling softened 0.6 per cent against the dollar at $1.1951. REUTERS
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