The Dollar Falls From aSix-Week High, While the Swedish Crown Rises
As a rush of economic data confirmed market expectations of tighter monetary policy from the Federal Reserve, the dollar slipped down on Monday but remained near Friday's six-week high.
The US dollar index, which compares the greenback to six other major currencies, fell 0.1% to 103.91. It is still up over 1.8% for the month, putting it on course for its first monthly gain since September of last year. On Friday, it reached a six-week high of 104.67.
Because US markets are closed for Presidents' Day on Monday, liquidity is likely to be weak. In recent weeks, data from the world's largest economy have pointed to a still-tight labor market, sticky consumer prices, solid retail sales, and increased producer prices, heightening anticipation that the US central bank would do more to moderate inflation and raise interest rates.
Nevertheless, with markets anticipating the Fed funds rate to crest at just about 5.3% by July, economists believe the dollar's rally may have peaked.
"The dollar has had quite a substantial rise this month based on rate repricing, and the issue is how much farther that will go," ING's global head of markets, Chris Turner, said.
"I'd say we've seen the most of what we're calling a 'corrective rally' in the dollar," Turner added. Fed members' hawkish statements have also supported the US currency, indicating that interest rates would need to increase to combat inflation.
Sweden's crown gained after core inflation increased in January, and minutes from the central bank's most recent meeting revealed officials supported more rate rises to bring inflation under control.
The euro declined 1.1% to 11.059 Swedish crowns versus the Swedish crown, while the dollar fell 0.8% to 10.3604. "We now envision the Riksbank rising by 50 basis points in April and 25 basis points in June," said Nordea chief economist Torbjörn Isaksson, who previously predicted a 25 basis point increase in April.
"This should help the crown, and we are seeing it stronger today," Isaksson said, noting that the European Central Bank (ECB) and the Federal Reserve (Fed) have both sounded hawkish.
Two ECB officials stated on Friday that interest rates in the eurozone still had room to climb, raising market pricing for the peak ECB rate. The euro was little changed versus the dollar, trading at $1.0687, slightly above the six-week low of $1.06125 set on Friday.
"We believe the disinflationary trend in the United States will continue in the second quarter, whereas inflation in Europe is likely to be stickier," Turner of ING said.
"Euro rates are expected to remain higher, but we believe dollar rates will more readily fall," Turner noted, adding that this might help the euro in the first half of the year.
The dollar fell 0.1% versus the yen, reaching 134. On Friday, it reached a two-month high of 135.12 yen. The Australian dollar gained 0.4% to $0.6909 ahead of the release of the minutes from the Reserve Bank of Australia's most recent policy meeting on Tuesday.
The kiwi gained 0.1% to $0.6249 ahead of the Reserve Bank of New Zealand's (RBNZ) rate announcement on Wednesday, when the bank is expected to raise interest rates by half a point.