US dollar slips as the market eyes upcoming Fed action

THE dollar edged lower against the euro and sterling on Friday (Feb 17), as the market readjusted ahead of the weekend and awaited clues on how the Federal Reserve plans to continue tackling still-high inflation.

Several Fed officials signalled last week that the US central bank likely has to raise interest rates higher to bring inflation back to its desired levels.

That hawkish speak coupled with hotter-than-expected economic data has led some banks to forecast three additional rate hikes this year.

Goldman Sachs said it is expecting the Fed to hike rates three more times by a quarter of a percentage point each time, after data pointed to persistent inflation and resilience in the labour market. “The market is kind of recalibrating itself for the coming months. The most realistic one, I think, is going to be the 25 basis points in March, and then another 25 basis points in May,” said Amo Sahota, director at Klarity FX in San Francisco.

The dollar index was last down 0.24 per cent at 103.83, after earlier reaching 104.67, the highest since Jan 6.

“The market has already reacted to recent strong data prints in anticipating the Fed’s playbook to put (the) dollar at its current level, but what happens next is still a question,” said Uto Shinohara, managing director and senior investment strategist at Mesirow. “Investors are waiting for more information to act as a catalyst. In the meantime, the trimming of long dollar positions and covering euro and sterling shorts following the dollar’s recent pop can be expected as the market awaits the release of FOMC meeting notes on Wednesday, hoping for clues revealing the pulse of the Fed.”

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Sterling was up 0.48 per cent at US$1.2044 while the euro rose 0.22 per cent to US$1.0696, after earlier falling to US$1.06125, the lowest since Jan 6. European Central Bank officials have also made clear that they expect eurozone rates to keep rising. REUTERS