Gertrude Chavez-Dreyfus
NEW YORK (Reuters) – The dollar rose on Thursday as mixed U.S. data failed to shake views that the economy is still on solid ground, suggesting the Federal Reserve is likely to delay the timing of its first interest rate cut. rates from 2020 to later this year.
Comments by New York Fed President John Williams that there was no immediate need to cut interest rates given the strength of the economy also helped lift the dollar. The president of the New York Fed is always a voter on the central bank’s policy-making committee.
Warnings from U.S., Japanese and Korean financial leaders about the sharp fall in the yen and won, however, weighed on the dollar overnight and gave the yen some rare respite. But the influence has since dissipated.
The yen rose slightly on Wednesday after Japan’s top currency diplomat, Masato Kanda, said G-7 financial leaders had reaffirmed their stance that excessive currency volatility is undesirable.
But strong U.S. economic data and persistent inflation have prompted investors to radically rethink the chances of the Fed cutting rates anytime soon. On Thursday, that power was on display again.
Manufacturing activity in the U.S. Mid-Atlantic region rose the most in two years in April, driven by new orders and finished goods deliveries.
The Philadelphia Fed’s monthly index of business conditions rose to 15.5 from 3.2 in March, topping economists’ average estimate of 2.3 and exceeding even the most optimistic forecast of the 34 economists surveyed.
“It’s really difficult to fight the strength of the dollar right now. “U.S. data continues to suggest the Fed has no plans to cut rates anytime soon,” said Vasily Serebryakov, currency strategist at UBS in New York.
“We are starting to see more divergence in pricing between the US and the rest of the G10. If you look at the difference in 10-year real interest rates between the US and Europe, it has widened in favor of the dollar.”
Other economic reports on Thursday were neutral to weak. Initial U.S. jobless claims were unchanged at a seasonally adjusted 212,000 for the week ended April 13, data showed, still above the 215,000 forecast.
In the housing sector, U.S. existing home sales fell in March as higher interest rates and home prices put buyers on the back burner. Home sales fell 4.3% last month to a seasonally adjusted annual rate of 4.19 million units.
In afternoon trading, the index, which measures the U.S. currency against six other currencies, rose 0.2% to 106.15, still within reach of this week’s 5.5-month high of 106.51 hit on Tuesday. The index is up 4.5% this year.
The Japanese currency fell against the dollar, pushing the dollar up 0.1% to 154.580 yen, not far from a 34-year low of 154.79 hit on Tuesday.
Market participants have raised the bar for possible intervention by Japanese authorities to support the yen, which now points towards 155, although they believe Japan could intervene at any time.
Bank of Japan Governor Kazuo Ueda said on Thursday the central bank could raise interest rates again if a weaker yen significantly boosts domestic inflation.
In other currencies, the euro fell 0.3% against the dollar to $1.0643. Sterling fell 0.1% to $1.2440.
U.S. interest rate futures on Thursday priced in about 38 basis points of easing in 2024, or 1-1/2 cuts at 25 bps. each. This is a sharp decline from a six-quarter point weakening at the start of the year. According to CME FedWatch Tool, traders view September as the most likely starting point for a decline compared to June just a couple of weeks ago.
“We’ll get US GDP (gross domestic product) data next week, but people are looking beyond that now. The next big number is the May 3 employment data, which will likely show a solid number of, say, north of 250,000,” said Mark Chandler, chief market strategist at Bannockburn Forex in New York.
“The market is also making a similar adjustment in terms of Fed policy. Fed funds futures are showing a decline of about 1-1/2, which tells me there is room to get it down to one.”
In cryptocurrencies, Bitcoin rose 4.4% to $63,508 ahead of a widely expected halving in the next few days. Halving refers to a technical adjustment built into the code of a digital currency that reduces the rate at which new coins are created.