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Investing.com – The U.S. dollar rose sharply in European trading on Friday after the Swiss National Bank's surprise interest rate cut cast the Federal Reserve in a more hawkish light.
At 04:00 ET (09:00 GMT), the dollar index, which tracks the dollar against a basket of six other currencies, was trading 0.4% higher at 104.085, near a three-week high and on track for a second week with winnings.
US economy on solid foundations
They delivered the biggest surprise of a week of central bank meetings in which interest rates were cut and the strength of the franc was cited as the reason.
The Swiss franc, the best-performing G10 currency in 2023, fell more than 1% overnight and fell further on Friday, rising 0.4% to 0.9009, moving closer to parity.
The move has traders reassessing the Fed's likely future actions after this week's FOMC meeting reiterated the likelihood of three rate cuts this year if economic data allows.
The Federal Reserve also significantly raised its outlook for growth in 2024, and data on Thursday suggested the U.S. economy remains on solid footing after the number of Americans applying for unemployment benefits rose last week fell unexpectedly, while sales of old appliances posted their biggest increase in a year in February.
This suggests that the Fed does not need to be in a hurry to cut rates in the future.
However, “the dollar's rise appears to be exaggerated,” analysts at ING said in a note.
“The Federal Reserve sent a pretty clear message earlier this week: some resilience in activity data will not be a barrier to a rate cut as long as inflation shows downward momentum.”
BOE rate cut expectations not “unreasonable”
In Europe, it fell 0.5% to 1.2588, falling to a one-month low after interest rates were left unchanged on Thursday but two MPC members backed off calls for a rate hike amid easing inflation.
Expectations of interest rate cuts this year are not “unreasonable,” Bank of England Governor Andrew Bailey said, the Financial Times reported on Friday.
“Markets are largely interpreting this as confirmation that cuts are not too far away,” ING added, now increasingly convinced that the BoE will begin easing in June (priced in at 20 basis points) while also considering a measure May speculation begins (7 basis points). priced in).”
traded 0.4% lower at 1.0814, with Eurozone activity data continuing to paint a bleak picture for the region's manufacturing outlook.
The European Central Bank may be able to cut interest rates before the summer break, possibly in June, as inflation is on track back to the bank's 2 percent target, Bundesbank President Joachim Nagel said on Friday.
With the comments, Nagel joins a long list of policymakers who appear to be in favor of cutting interest rates in June and suggests that the ECB will become the second major central bank, after its Swiss counterpart, to begin unwinding a record series of interest rate hikes .
Yen near four-month low
The yen was trading marginally lower at 151.59, near its highest level in four months, with the yen suffering sharp losses overnight.
rose 0.2% to 7.2297, crossing 7.2 for the first time since November 2023, after reports that the PBOC sold dollars and bought yuan on the open market to support the Chinese currency.
The value fell 0.8% to 0.6515, with risk sentiment taking a hit.
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