In the early trading of the Asian market on May 1, the US dollar index rose slightly and is currently trading around 101.76. The dollar rose on Friday after data showed U.S. inflation rose in March, albeit at a slower pace, keeping the Fed firmly on track to raise interest rates this week.
The U.S. dollar index rose as high as 102.19 last Friday, before closing up 0.09% at 101.60.
Data on Friday showed that the U.S. personal consumption expenditures (PCE) price index rose 0.1% in March after rising 0.3% in February. In the 12 months through March, the PCE price index rose 4.2 percent after climbing 5.1 percent in February. Excluding the volatile food and energy components, core PCE prices rose 0.3%, the same pace as in February. The so-called core PCE price index rose 4.7% in March from a year earlier. 4.6%. The Fed tracks the PCE price index to achieve its 2 percent inflation target.
Joseph Lavorgna, chief U.S. economist at SMBC Nikko Securities, said: “You may need a larger slowdown to reassure the Fed that it has successfully completed its task; it has not yet. That does not change the Fed’s interest rate this week. Prospects for resolution.”
After the inflation data, the interest rate futures market had priced in a 90% chance that the Fed would raise rates by 25 basis points this week.
“We think the balance of odds is gradually shifting in favor of the dollar,” Jonathan Petersen, senior market economist at Capital Economics, wrote in a research note. “The ‘Goldilocks’ of stronger activity data outside the U.S. The mechanism appears to be fading, and we expect the dollar to benefit from safe-haven demand once the global growth picture begins to deteriorate more sharply in the coming months.”
The dollar extended gains after another report on Friday showed that the University of Michigan’s consumer sentiment index came in at 63.5 in April, up from a three-month low of 62 in March. U.S. consumers’ one-year inflation expectations rose to 4.6 percent this month from 3.6 percent in March, further supporting rate hike expectations and also boosting the dollar.
The yen, meanwhile, fell across the board after the Bank of Japan, as expected, said it would keep interest rates ultra-low and unanimously decided not to make changes to its yield curve control (YCC) policy. The dollar rose 1.6 percent against the yen last week, its best week since late February. The exchange rate once rose to 136.56 last Friday, and finally closed up 1.72% at 136.27.
EUR/USD closed up 0.02% at 1.1024 on Friday. The ECB will announce its interest rate decision on May 4, followed by ECB President Lagarde’s monetary policy press conference. The market had expected the European Central Bank to raise interest rates by 50 basis points.
Still, economic data showed mixed growth and inflation across the euro zone, adding to uncertainty about the size of the ECB’s expected rate hike this week.
Preliminary data showed that euro zone gross domestic product rose 0.1% in the first quarter, below the 0.2% forecast in a consensus poll.
AUD/USD fell as low as 0.6573 on Friday before closing 0.20% lower at 0.6614. Expectations that the Reserve Bank of Australia will pause interest rate hikes weighed on the Australian dollar.
Expect RBA to keep rates on hold at May meeting, says TD Securities analyst. Analysts noted that the RBA hit the pause button on rate hikes last month and is expected to keep rates on hold again as the central bank wants more time to assess the impact of rapid rate hikes. A continued slowdown in monthly CPI data and a decline in the RBA’s preferred inflation measure, the trimmed average CPI, gives it room to continue to pause rate hikes.
Key stats and events to watch on Monday
Summary of Institutional Viewpoints
1. TD Securities predicts that the Fed will raise interest rates by 25 basis points this week;
TD Securities: It is expected that the FOMC meeting will raise interest rates by 25 basis points this week, and it is expected that the communication after the meeting will: ① emphasize that the slowdown in inflation is slower than expected, leaving the possibility of further tightening policies; ② admit that the economic environment is more difficult Definitely, especially the credit situation after the SVB incident
2. Bank for International Settlements: The dollar’s share in the global credit market has declined, while the euro and the yen have risen;
The U.S. dollar’s share of global credit markets has declined, the Bank for International Settlements said, as higher interest rates made dollar loans more expensive and borrowers switched to the euro and yen. In the fourth quarter of 2022, U.S. dollar credit to non-bank institutions outside the United States fell by 4% year-on-year to $12.8 trillion, the largest decline since the global financial crisis. Meanwhile, euro credit rose 8% to 4 trillion euros ($4.4 trillion), while yen credit rose 17%, driven by bank lending
3. United Overseas Bank: The downward momentum of the Australian dollar against the US dollar has accelerated;
① Lee Sue Ann, an economist at UOB, and Quek Ser Leang, a market strategist, said that the Australian dollar is at risk of further weakness against the U.S. dollar in the near future and faces strong support at 0.6565;
②Looking forward, if the AUD/USD effectively falls below 0.6565, the focus will turn to the integer support level of 0.6500 AUDUSD 0.6614-0.01%
4. Dutch National Bank: Forecast that EUR/USD will continue to rise towards 1.20;
Ingvild Borgen, an analyst at the Dutch National Bank, said: “Our forecast in January was 1.10 for the euro against the dollar in three months and 1.20 in 12 months; three months later, the euro against the dollar reached the expected level, but we expect From now on, EUR/USD is not going to continue towards 1.20 uninterrupted.”