US dollar flat to modestly higher as upbeat data backs May rate hike

The US dollar was little changed to slightly higher against major currencies on Friday (Apr 21), as business activity data suggested that the economy remained resilient, supporting expectations of another 25-basis-point interest rate increase by the Federal Reserve at next month’s policy meeting.

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.

For the euro, a surprising recovery in the eurozone economy in April underpinned the currency.

The greenback’s outlook 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.

Elsewhere, the recovery in the eurozone unexpectedly gathered pace this month, thanks to a boom in services sector demand compensating for a deepening decline in manufacturing. The euro was last up 0.1 per cent against the dollar at US$1.0982, recovering from a session low of US$1.0938.

In other currencies, sterling dipped 0.1 per cent to US$1.2431, having dropped by as much as 0.54 per cent earlier.

SEE ALSO

US dollar, euro steady after strong US bank results

The yen was one of the stronger performers earlier in the session, rising to a one-week high against the dollar. The dollar was last slightly lower against the Japanese unit at 134.17 yen. REUTERS