US dollar builds on gains as economy shines in February
THE US dollar rose slightly on Wednesday (Feb 22), continuing to trade near six-week highs on the back of strong economic data.
Survey data released on Tuesday showed that US business activity unexpectedly rebounded in February, reaching its highest in eight months. In the eurozone, a survey-based gauge of activity also surged, hitting a nine-month high.
The signs of economic strength caused traders to pencil in further interest-rate hikes from the Federal Reserve on Tuesday, driving the US’ S&P 500 index 2 per cent lower and the US dollar up 0.3 per cent.
On Wednesday, the euro was down 0.15 per cent at US$1.063, just above Friday’s six-week low of US$1.061.
The US dollar index was up 0.13 per cent at 104.28, not far off the six-week high of 104.67 hit at the end of last week.
Investors’ focus has now turned to the publication of the minutes from the Fed’s latest meeting. That will happen later on Wednesday, and could offer more insight into policymakers’ plans.
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Alvin Tan, head of Asia FX strategy at RBC Capital Markets, said: “We’ve been in this US dollar rebound for three weeks. The fundamental driver essentially is the market repricing Fed hikes higher.”
“That’s the near-term momentum and that’s the path of least resistance,” he added. “I wouldn’t fight it for now... a further extension of this rally is likely in my view.”
A blockbuster US employment report in early February sparked a rebound in the US dollar, which has been helped along by a series of strong data releases.
Refinitiv data based on derivative-market pricing showed that traders on Wednesday were projecting that the Fed’s main interest rate would rise to peak around 5.35 per cent in July.
At the start of February, expectations were for a peak at just below 5 per cent. The Fed has raised rates to a range of between 4.5 per cent and 4.75 per cent. As recently as March 2022, the rate range was between 0 per cent and 0.25 per cent.
Investors have also increased their European Central Bank rate bets. Deutsche Bank on Tuesday said it was expecting rates to rise to 3.75 per cent, having previously expected them to rise to 3.25 per cent from their current level of 2.5 per cent.
Against the yen, the US dollar slipped 0.2 per cent to 134.75, after rising more than 0.5 per cent on Tuesday.
The pound was down 0.26 per cent to US$1.208. It climbed 0.6 per cent on Tuesday after British survey data also came in strong.
Themos Fiotakis, head of FX strategy at Barclays, said he still expects the US dollar to fall by the end of the year.
“We are closer to the peak than anything in terms of US rates. The natural gas story is easing. The Chinese economy is doing better with the reopening,” he said.
Fiotakis said these factors should help push the US dollar down and the euro up to US$1.12 by the end of the year, although he said a fall to US$1.04 was possible in the short term.
The New Zealand dollar was last up 0.19 per cent at US$0.623, after having risen to an intra-day high of US$0.625 earlier in the session following a hawkish rate hike from the Reserve Bank of New Zealand. REUTERS
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