Dollar continues to receive support from strong economic data
2023.02.22 09:27
Dollar continues to receive support from strong economic data
By Ray Johnson
Budrigannews.com – On the back of solid economic data, the dollar traded close to six-week highs on Wednesday, gaining a little bit.
Business activity in the United States unexpectedly rebounded in February to its highest level in eight months, according to survey data released on Tuesday. A survey-based indicator of activity also increased in the euro area, reaching a nine-month high.
The U.S. stock index fell 2% on Tuesday as traders anticipated further interest rate hikes from the Federal Reserve, propelling the dollar up 0.3 percent.
The euro was down 0.15 percent on Wednesday, trading at $1.063, just above its six-week low of $1.061 on Friday.
At 104.28, the was down 0.13 percent from its six-week high of 104.67 set at the end of last week.
Investors are now focused on the Fed’s latest meeting minutes, which could provide additional insight into the plans of policymakers, being released later on Wednesday.
“For three weeks, we have been in this dollar rebound. “The market repricing Fed hikes higher is essentially the fundamental driver,” stated Alvin Tan, head of Asia FX strategy at RBC Capital Markets.
Tan stated, “That’s the path of least resistance and the near-term momentum.” I wouldn’t fight it right now because I think this rally will be extended again.
The rebound in the dollar, which has been aided by a series of strong data releases, was sparked in the beginning of February by a record-breaking employment report from the United States.
Based on Refinitiv data derived from derivative market pricing, traders predicted on Wednesday that the Fed’s main interest rate would reach a peak of approximately 5.35 percent in July.
At the beginning of February, a peak was anticipated to be just below 5%. As recently as March 2022, the Federal Reserve raised rates to a range of 4.5 percent to 4.75%, from 0% to 0.25%.
Additionally, investors have increased their ECB rate wagers. ETR: Deutsche Bank on Tuesday stated that it now anticipates a rate increase to 3.75 percent, having previously anticipated a rise to 3.25 percent from their current level of 2.5 percent.
After gaining more than 0.5 percent on Tuesday, the dollar fell 0.2 percent to 134.75 yen.
The pound fell 0.26 percent to $1.208. Tuesday’s strong British survey data resulted in a 0.6% increase.
Head of FX strategy at Barclays (LON:), Themos Fiotakis said that the dollar would still fall by the end of the year.
“In terms of U.S. rates, we are closer to the peak than anyone else. The narrative is waning. With the reopening, the Chinese economy is doing better,” he stated.
These factors, according to Fiotakis, should help the dollar fall and the euro rise to $1.12 by the end of the year, though a short-term fall to $1.04 was possible.
After rising to an intra-day high of $0.625 earlier in the session in response to a hawkish rate hike from the Reserve Bank of New Zealand, the New Zealand dollar was last up 0.19 percent at $0.623.
