US dollar edges lower from six-week peak, Swedish krona jumps

THE US dollar edged lower on Monday (Feb 20) but kept close to last Friday’s six-week high, after a flurry of economic data reinforced the market’s expectations of tighter monetary policy from the Federal Reserve.

The US dollar index, which measures the greenback against six other major currencies, slipped 0.1 per cent to 103.91. It is still up almost 1.8 per cent for the month, keeping it on track for its first monthly gain since September 2022. It hit a six-week high of 104.67 last Friday.

Liquidity is expected to be thin on Monday, with US markets closed for Presidents’ Day.

Data from the world’s largest economy in recent weeks pointed to a still-tight labour market, stubborn consumer prices, robust retail sales and higher producer prices. This raised expectations that the US central bank had more to do to tame inflation, and that interest rates would rise.

But with markets expecting the Fed funds rate to peak at just under 5.3 per cent by July, analysts said the move in the US dollar may have run its course.

Chris Turner, global head of markets at ING said: “The US dollar has had quite a big move this month on the back of rates repricing, and the question is how much further that’s going to run.”

“I’d say the majority of what we’re calling a ‘corrective rally’ in the US dollar has been seen,” he added.

Hawkish comments from Fed officials also underpinned the US dollar, as they signalled that interest rates would need to rise to quash inflation.

Sweden’s krona outperformed after core inflation ticked up in January, while minutes from the central bank’s last meeting showed policymakers backed more rate hikes to bring inflation under control.

The euro fell 1.1 per cent against the krona to 11.059, while the US dollar was down 0.8 per cent to 10.3604.

“We now see the Riksbank hiking by 50 basis points in April and 25 basis points in June,” said Torbjorn Isaksson, chief analyst at Nordea, who previously saw one more 25-basis-point rise in April.

“This should support the krona and we are seeing it stronger today,” he added, noting that the European Central Bank (ECB) and Fed have also sounded hawkish.

Two ECB policymakers said last Friday that interest rates in the eurozone had some way to rise; this pushed up market pricing for the peak ECB rate.

The euro was little changed against the US dollar at US$1.0687, just above Friday’s six-week low of US$1.06125.

“We think the US disinflation process will have another leg in the second quarter, while in Europe, inflation is likely to be stickier,” ING’s Turner said.

“Euro rates are probably likely to stay at higher levels, whereas we think US dollar rates will more easily turn lower,” he added, further noting that this could support the euro in the first half of the year.

The US dollar was down 0.1 per cent against the yen to 134. It hit a two-month high of 135.12 yen last Friday.

The Australian dollar rose 0.4 per cent to US$0.6909 ahead of the publication of minutes from the Reserve Bank of Australia’s latest policy meeting on Tuesday.

The kiwi rose 0.1 per cent to US$0.6249. The Reserve Bank of New Zealand (RBNZ) will make a rate decision on Wednesday, and is expected to scale down to a half-point interest-rate increase. REUTERS