©Reuters. FILE PHOTO: US dollar and euro banknotes are seen in this July 17, 2022 illustration. REUTERS/Dado Ruvic/Illustration
By Ankur Banerjee and Harry Robertson
SINGAPORE/LONDON (Reuters) – The dollar fluctuated near a seven-week high on Monday as investors took stock of last week’s strong economic data and the rapid repricing of where interest rates will peak.
Data on Friday showed US consumer spending rebounded sharply in January as inflation accelerated.
Traders now expect the Fed to hike rates to around 5.4% by the summer, according to pricing in futures markers. At the beginning of February, they expected interest rates to rise to a high of just 4.9%.
The euro fell to its lowest level against the dollar since Jan. 6 on Monday, as the US currency rallied and slipped to $1.053. After that, it recovered somewhat and was last up 0.1% to $1.055.
The , which measures it against six major peers, was last down less than 0.1% to 105.11 after previously climbing to a seven-week high of 105.36.
The index is up 3% in February and is facing a four-month losing streak. The expectation of higher interest rates tends to strengthen a currency by making the country’s fixed income assets more attractive.
“While key interest rates are falling, the trend of rising core inflation rates is unbroken,” said Ulrich Leuchtmann, Head of FX Research at Commerzbank (ETR:).
“It’s not until we see a reversal in this data that the inflation fears currently affecting the market will subside.”
Data on Friday showed that the core measure of US consumer spending inflation, which excludes volatile food and energy costs, came in at 4.7% yoy in January, up from 4.6% in December.
Core consumer price inflation in the euro zone rose to a record high of 5.3% yoy in January.
The dollar was last steady at 136.3 yen against the Japanese yen, reversing some of its gains after rising to a more than two-month high of 136.58 earlier in the session.
New Bank of Japan Governor Kazuo Ueda said Monday that the benefits of the bank’s current monetary policy outweigh the costs, stressing the need to maintain support for the Japanese economy with ultra-low interest rates.
The pound was also unchanged at $1.1946 after falling three straight sessions.
Currencies vs Dollars https://fingfx.thomsonreuters.com/gfx/mkt/akveqomjxvr/Screenshot%202023-02-27%20084445.png
Investors will have more information on the state of the global economy this week, with US-ISM February manufacturing survey data expected on Wednesday; and preliminary euro-zone CPI inflation figures for February, due the following day.
“We’re in a bit of a nervous environment,” said Moh Siong Sim, currency strategist at Bank of Singapore, adding that the market was uncertain about the pace of Fed rate hikes.
“Can (the Fed) keep the 25 basis point hike? Or will she be forced to pick up the pace again? I think those are the questions the market is grappling with,” Sim said.
The price was down 0.08% at $0.672 after falling below $0.67 earlier in the session to its lowest level since early January.
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