US dollar edges up as markets weigh chances of Fed rate hike

THE US dollar edged up against major currencies on Monday (Jun 5), as markets priced in around a 30 per cent chance of the US Federal Reserve (Fed) raising benchmark rates this month after robust jobs data on Friday.

The US dollar index – which tracks the greenback against six peers – came off the boil last week, after some Fed officials had voiced a preference for a pause in rate hikes and after a breakthrough in US debt ceiling talks calmed market jitters.

Despite a surprisingly high payrolls figure for May, indicating that the US economy may still be running hot, analysts said the Fed may still have scope to pause rate rises as wage pressures eased and unemployment rose from a 53-year low.

Markets are now putting the probability of a 25 basis point hike at the meeting on Jun 13-14 at 29.1 per cent.

This is down from two-in-three odds a week earlier.

The US dollar index was last up 0.1 per cent on the day at 104.250.

US services data due later on Monday could give further clues, though analysts said core inflation data due next week was more likely to move the needle.

“...the lack of other key inputs before next week’s consumer price index (inflation data) could keep the US dollar capped,” currency analysts at ING said in a note.

“We think that, when adding the cooling off in wage inflation, and considering the diverging views within the FOMC (Federal Open Market Committee), the case for a pause at the Jun 14 meeting should prevail.”

The euro slipped 0.1 per cent to US$1.06950, extending the previous session’s 0.5 per cent slide.

Markets are looking ahead to European Central Bank chief Christine Lagarde addressing a hearing in the European parliament later on Monday. Meanwhile, the US dollar gained 0.2 per cent versus the yen at 140.265.

The Australian dollar fell 0.2 per cent to US$0.65905, ahead of a decision by the central bank on Tuesday on whether to raise rates that analysts said was on a knife-edge.

Elsewhere, the Turkish lira dropped more than 1.5 per cent, continuing its slide since President Tayyip Erdogan’s re-election.

The decline came despite the appointment of Mehmet Simsek as Turkey’s finance minister.

He had won markets’ confidence during previous stints in the government between 2009 and 2018. REUTERS