The dollar rallied from a 10-month low as investors boosted their expectations for US interest rates on signs of stubborn inflation and unexpectedly strong economic activity.
The world’s most important reserve currency soared to a 20-year high in September but fell 11.2% over the next four months as US inflation eased from its multi-decade peak. Towards the end of 2022.
But February kicked off with a string of economic data suggesting the world’s largest economy remains healthy, dollar Since the beginning of the month, it has risen 3% against a basket of six other major currencies, erasing the January decline.
The US added more than 500,000 jobs last month, almost triple the consensus forecast, but inflation fell to 6.4%, a smaller decline than expected.
“The inflation report has ruined the market’s bit of disinflationary plans,” said Florian Hierpo, multi-asset portfolio manager at Lombard Odier, and the central bank is likely to maintain upward pressure on rates as a result. Stated.
Nomura Securities forex strategist Jordan Rochester said February “started with the assumption that everyone in the macroeconomic world would sell the dollar against the euro and against the yen. Almost all of the U.S. has since. data points are stronger than expected, the market is slowly coming closer to what the Fed has been saying for years, rates need to go further and will be put on hold for some time.”
US benchmark interest rates range from 4.5% to 4.75%. At the beginning of February, the futures market priced in an interest rate peak near 4.9%, followed by two rate cuts in the second half of the year, bringing borrowing costs to about 4.4% heading into 2024.
Just two weeks later, the market shifted to forecast a peak of 5.28%, ending the year just above 5% following one rate cut.
Still, some investors suspect it will take longer for the dollar’s strength to continue. Analysts at UBS said the currency is likely to continue rising this quarter, but “resumes its downward trajectory as global growth and risk sentiment improve.”
https://www.ft.com/content/8f94ecfc-a2f9-4f24-aabf-d700cee981fb Dollar rebounds as US economy defies skeptics