US Dollar Soars on Dwindling Rate Cut Expectations

15 Apr 2024 , 09:01 AM

The possibility of persistently high U.S. interest rates and the developing Middle East crisis provided support for the dollar on Monday, which held its largest weekly gain since 2022.

Last week, the dollar gained 1.6% versus a basket of six major currencies as expectations on U.S. rate cuts were called into question by a slight but unsettling upside surprise in U.S. inflation, while European authorities hinted at a decrease within a few months.

Early in the Asian day, the dollar set a 34-year high against the yen and a five-month high against the euro on Friday. It bought 153.24 yen and a euro for $1.0646. Iran launched an attack on Israel over the weekend, to little response at first.

The Australian and New Zealand dollars both marginally increased to move away from their lows. The Australian dollar gained 0.2% to $0.6475, having momentarily touched a two-month low of $0.6455.

The kiwi, which on Friday fell to a five-month low, increased by 0.2% to $0.5946. Like the Australian and New Zealand dollars, bitcoin may be used as a gauge of market sentiment. It dropped last week and over the weekend, but it stabilised on Monday at $65,721.

Iran had threatened to hit Israel, and it responded to what it claimed was an Israeli attack on its consulate in Damascus over the weekend by launching drones and missiles. With only minor damage, Iran declared that it had "deemed the matter concluded."

Financial markets were in a wait-and-see mode as two top Israeli officials said on Sunday that Israel would not act alone and that retaliation was not likely, raising concerns about the possibility of a wider war in the region.

Near Friday's five-month low of $1.2426, sterling saw a 0.1% increase to $1.2460.

United States two-year yields increased by 15 basis points this week, and markets reduced their estimates for a 50 basis-point decrease in interest rates this year, with the first cut not fully priced until September. From January price for reduction of more than 150 bps by December, that is a long way off.

Later on Monday, U.S. retail sales data is expected. On Tuesday, Chinese growth data and inflation readings from Canada and New Zealand are expected. Wednesday's British inflation data and Thursday's Australian jobs statistics are released.

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