BusinessUS Dollar Rises for a Strong Weekly Finish as Yen Weakens Before...

US Dollar Rises for a Strong Weekly Finish as Yen Weakens Before BOJ Meeting

US dollar set for significant weekly increase since mid-January; yen weakens ahead of BOJ © Reuters. FILE PHOTO: Illustration of U.S. Dollar banknote taken on July 17, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

Authored by Gertrude Chavez-Dreyfuss

In New York, the dollar surged to a more than one-week peak on Friday following a mixed set of data revealing that the U.S. economy displayed stability with slight areas of weakness. This suggests that the Federal Reserve may opt to maintain higher interest rates for an extended period or potentially decrease the expected number of rate cuts throughout the year.

The US Dollar Index, which monitors the U.S. currency against six major counterparts, is projected to report a weekly increase of 0.7%, marking the largest gain since mid-January. As of now, the index hovers around 103.43, with minimal fluctuation.

Recent data demonstrated a robust U.S. manufacturing sector, as production rebounded by 0.8% last month subsequent to a downwardly revised 1.1% decline in the prior month. Despite this positive turn, analysts at Citi highlighted in a research report that the February rebound partly resulted from the downwardly revised January output and the elimination of a “weather-related drag in January in non-durable goods manufacturing sectors.”

An assessment on Friday revealed that U.S. consumer sentiment and inflation projections remained relatively stable in March. The University of Michigan’s preliminary assessment of the overall consumer sentiment index stood at 76.5 this month, compared to a final reading of 76.9 in February.

Regarding inflation expectations, the survey indicated a consistent one-year inflation forecast of 3.0% for March. Similarly, the five-year inflation outlook remained unchanged at 2.9% for the fourth consecutive month.

Although the Federal Reserve’s upcoming meeting is not anticipated to result in any interest rate adjustments, better-than-anticipated U.S. producer and consumer price data this week prompted traders to scale back on expectations for future rate decreases.

Eugene Epstein, head of structuring for North America at Moneycorp in New Jersey, stated, “Prior to the meeting, there is no evidence suggesting that the Fed can afford to adopt a dovish approach at this juncture.”

As per LSEG’s rate probability app, the rate futures market on Friday indicated a 57% probability of the Fed reducing rates in June, in contrast to 71% at the beginning of the week. Moreover, expectations for rate cuts throughout the year have dwindled to less than three, down from an initial projection of three to four.

Traders are also eagerly awaiting the upcoming Bank of Japan meeting. The BOJ is nearing the conclusion of eight years of negative interest rate policy, with plans for an exit following the appointment of Kazuo Ueda as BOJ governor.

Simultaneously, Japan’s leading companies reached an agreement with labor unions to increase wages by the highest margin in 33 years on Friday.

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