Dollar Firms Up, Zimbabwe Hikes Policy Rate to 80%
The United States dollar firms up on Monday after tracking lower against major trading partners in the just concluded week. U.S dollar however recorded a modest decline against the Canadian dollar, as markets continue to digest the solid March employment report from Friday and its implications for the Federal Open Market Committee meeting May 3-4.
Non-farm payrolls rose less than expected in March but followed upward revision to gains in the previous two months. Average hourly earnings rose by 0.4%, while the unemployment rate declined to 3.6%, all suggesting a tight labour market.
Analysts and some Fed officials have suggested that this opens the door to the possibility of a 50-basis point rate increase at the May 3-4 FOMC meeting, with the March inflation data released later in April a key factor in how fast the Fed proceeds.
The only data scheduled for release on Monday are factory orders and shipments for February. The highlights of the week are the ISM services reading on Tuesday and the minutes of the FOMC’s March 15-16, where rates were increased by 25 basis points.
A quick summary of foreign exchange activity heading into Monday shows that USD-CAD fell slightly to 1.2495 from 1.2510 at the Friday US close but was higher than the 1.2490 level at the same point Friday morning.
Canadian building permits will be released today, followed by the Bank of Canada business outlook survey. The data highlight of the week will be the Canadian employment report on Friday.
The Bank of Canada meets on April 13 and markets are split on whether the BOC will raise rates by 25-basis points or decide to accelerate its tightening path with a 50-basis point increase.
USD-JPY rose to 122.77 from 122.50 at the Friday US close and 122.44 at the same point Friday morning. There were no Japanese data released overnight, and the next data events are Tuesday with the release of services PMI and household spending.
The Bank of Japan’s ultra-low interest rate regime is expected to remain for some time, with the BOJ actively defending its rate cap with bond-buying last week. GBP-USD fell to 1.3101 from 1.3110 at the Friday US close and 1.3140 at the same point Friday morning before the US employment report.
Speeches by Bank of England policy board members Andrew Bailey and Jon Cunliffe are the highlights for Monday in the absence of any key data. The Bank of England is expected to raise interest rates further at its May meeting.
EUR-USD slipped to 1.1005 from 1.1051 at the Friday US close and 1.1050 at the same point Friday morning. The European Central Bank will need to balance the impact of rising inflation with the situation in Ukraine when it meets next on April 14. Data released overnight showed a large surge in German trade in February after a decline in January.
Zimbabwe central bank raises policy rate to 80%
Zimbabwe’s central bank raised its main lending rate from 60% to 80% on Monday, saying its monetary policy committee was concerned with an escalation in annual inflation to 72.7% in March. READ: Guarded optimism on new Zimbabwe dollar
“In this regard, the committee reiterated the need for the bank to remain focused on inflation reduction and putting in place additional policy measures in response to the resurging inflationary pressures,” it said in a statement announcing its decision.
