SINGAPORE, Feb 27 (Reuters) – The dollar was on the front foot on Monday, hovering near a seven-week high after a string of strong US economic data bolstered views that the Federal Reserve would continue raising interest rates for longer must .
The dollar index, which measures the US currency against six major peers, was at 105.17, just below the seven-week high of 105.32 it hit on Friday after hotter-than-expected data. The index is up 3% in February and is facing a four-month losing streak.
The personal consumption expenditure (PCE) index, the Federal Reserve’s preferred indicator of inflation, surged 0.6% last month after rising 0.2% in December, data showed on Friday.
Consumer spending, which accounts for more than two-thirds of US economic activity, rose 1.8% last month, according to the Commerce Department. Economists polled by Reuters had forecast a 1.3% rebound in consumer spending.
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Rodrigo Catril, senior currency strategist at National Australia Bank, said the data showed a US economy that was running too hot earlier in the year, raising the urgency for the Fed to tighten further in the coming months.
“The reality is that the US economy started 2023 in a stronger position than many of us expected.”
The market now expects US rates to peak at 5.4% in July and remain above 5% through the end of the year.
Still, Fed policymakers on Friday did not push for a return to last year’s jumbo rate hikes, suggesting central bankers are content to stick to a gradual tightening path for now, despite signs inflation is not performing as hoped cools down
The Fed is expected to hike rates by 25 basis points at its March 21-22 meeting, although some analysts see the possibility of a 50 basis point hike if inflation remains high and growth remains strong.
“We now think officials are a lot closer to rising 50 basis points in March than our previous assumption of 25 basis points,” said Kevin Cummins, chief economist at NatWest Markets.
“We estimate the odds of the FOMC rising 50 basis points to be around 60%.”
The data also caused markets to push up likely interest rate hikes for the European Central Bank and Bank of England.
The two-year US Treasury yield, which normally moves in line with interest rate expectations, rose 0.4 basis points to 4.809%, just below the three-month high of 4.840% hit on Friday.
A closely watched portion of the US Treasury yield curve, which measures the gap between the yields of two- and ten-year Treasury bills, which is taken as an indicator of economic expectations, was -87.7 basis points.
The euro rose 0.08% to $1.0554, breaking the seven-week low it hit on Friday. Sterling was last traded at $1.1959, up 0.13% on the day
The Japanese yen rose 0.15% to 136.26 per dollar after falling to a more than two-month low of 136.58 earlier in the session.
The Australian dollar rose 0.12% to $0.673, while the kiwi rose 0.13% to $0.617 against the greenback.
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Currency bid prices at 0113 GMT
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Reporting by Ankur Banerjee in Singapore Editing by Shri Navaratnam
Our standards: The Thomson Reuters Trust Principles.
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