Dollar Tracks Higher after Hawkish Powell Remarks
The US dollar was firmer against its major trading partners early Friday after Federal Reserve Chairman Jerome Powell suggested Thursday that a 50-basis point rate increase is on the table for discussion at the Federal Open Market Committee’s May 3-4 meeting.
Federal Reserve officials observe a quiet period starting on Saturday before the May 3-4 Federal Open Market Committee meeting. A quick summary of foreign exchange activity heading into Friday shows that USD-JPY fell slightly to 128.3585 from 128.3836 at the Thursday US close but was higher than the 128.0979 rate a day earlier.
Japanese data released overnight showed slower manufacturing growth, faster service growth, and tame core inflation data, supporting the ultra-low interest rate stance of the Bank of Japan, which meets on April 27-28.
Concerns about the yen’s weakness have been pegged to the widening differential between the BOJ’s policy and the rapid tightening of monetary policy that is expected from the Fed this year.
USD-CAD rose to 1.2663 from 1.2583 at the Thursday US close and 1.2491 a day earlier, pushed higher by Powell’s remarks. Rising inflation is expected to prompt the Bank of Canada to raise rates by another 50 basis points at its June 1 meeting, and perhaps again at the following meeting.
GBP-USD fell to 1.2915 from 1.3027 at the Thursday US close and 1.3048 a day earlier. UK data released earlier Friday showed a sharp decline in retail sales, reduced consumer confidence, and disappointing flash PMI data for manufacturing and services.
Still, markets expect another rate increase at the Bank of England’s next meeting on May 5, with a 50-basis point hike possible. READ: Treasury Yield Prints 3.4% as Bond Tracks Higher
EUR-USD fell to 1.082 from 1.0837 at the Thursday US close and 1.0883 at the same point a day earlier. The EU PMI measures performed better than expected, with the manufacturing index down slightly and the services measure up, both above expectations and the breakeven point despite the war in Ukraine.
German and French PMI readings also beat expectations. The European Central Bank’s tightening path is a bit behind that of the Fed, which ECB President Christine Lagarde acknowledged on Thursday due to a slower recovery in Europe and greater exposure to the situation in Ukraine.
Some ECB officials have signaled this week that an increase is possible in July. #Dollar Tracks Higher after Hawkish Powell Remarks
