June 12, 2023: On Monday, the dollar jumped off lows, shrugging off some of the weakness that has set in this month as expectations have grown that the Federal Reserve may not raise interest speeds again for some time.
Next week is packed with important monetary policy meetings, including those of the Federal Reserve, the Bank of Japan, and the European Central Bank.
Meanwhile, On Thursday, data that showed a rise in the number of Americans filing recent cases for unemployment benefits surged to the highest in over 1-1/2 years in the previous week, pushing the dollar index down 0.8%, its most important one-day fall since the depths of the regional banking situation in March.
The index, which measures the U.S. currency against six others, is down 0.6% for the week, set for its largest weekly fall since mid-March when fears regarding the banking sector’s health roiled markets. It was last up 0.1% on the day.
“This jump put unemployed claims close to a two-year high and has been read by markets as a clear sign of coming weakness in the U.S. economy and a more-hesitant-to-hike Fed,” CaxtonFX strategist David Stritch said.
“The question now evolves, is this data isolated and the market simply read too much into it, or is it the first red flag that the U.S. economy may be weaker than rather expected?”
Money markets show merchants are placing just a one-in-four chance of the Fed’s 25-bp rate hike upcoming week, bringing U.S. rates to 5.50%.
“Before the meetings that we had this week, I stated I was expecting the status quo, now I’m not excluding something surprising because a central bank like Canada, which had telegraphed it was on hold, raised rates and stated it was concerned about inflation,” said Chester Ntonifor, FX strategist at investment provider BCA.
The Bank of Canada and the Reserve Bank of Australia jolted markets earlier this week by raising interest rates to tackle stubborn inflation, raising expectations for other central banks to stay tough on price pressures.
On Thursday, the ECB meets and is widely expected to raise eurozone rates by 25 bps to 3.50%, given core inflation is still rising, even though headline inflation has softened.
“For me, it’s clear that the ECB is going to stay hawkish; I don’t think they’re going to be more hawkish than what’s already priced in by markets; what is interesting is the Fed,” Ntonifor said.
The euro eased 0.1% to $1.0769, backing off Thursday’s two-week high. Sterling bounced nearly 1% on Thursday and was last up 0.17%.
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