Dollar Rises as Fears Resurface Following the OPEC+ Surprise
The US dollar began the week stronger as inflation worries returned following a surprise announcement by major oil producers to cut production even more, with traders betting the Federal Reserve would need to raise interest rates at its next meeting.
The declaration from OPEC and its allies, known as OPEC+, comes as statistics on Friday revealed that consumer spending in the United States climbed mildly in February after spiking the previous month, with inflation showing some indications of dropping even as it remained strong.
"While receding broader contagion risks, positive developments in China, and expectations that the Fed is nearing the end of the tightening cycle should keep sentiments broadly supported," said Christopher Wong, a currency strategist at OCBC in Singapore. "However, the recent oil price gain due to the surprise production cut is a new risk to inflation." "New inflation concerns mean that the inflation struggle is far from done."
The euro EUR=EBS fell 0.25% to $1.0812, a one-week low, while the Japanese yen JPY=EBS fell 0.04% to 132.86 per dollar. Sterling GBP=D3 was down 0.22% on the day at $1.2305, having hit a one-week low of $1.22825 earlier in the session.
The dollar index =USD, which compares the US dollar to six other currencies, was recently at 102.77, hoping to break over 103 for the first time in a week. The OPEC+ reduction resulted in an immediate 6% spike in oil prices on Monday.
The cutbacks were announced ahead of a virtual meeting of the OPEC+ ministerial panel, which includes Saudi Arabia and Russia, and were anticipated to maintain the existing cuts of 2 million barrels per day (bpd) until the end of 2023.
Instead, oil producers announced additional output cutbacks of roughly 1.16 million bpd on Sunday.
The two-year US2YT=RR U.S. Treasury yield, which moves in lockstep with interest rate forecasts, was up 2.7 basis points to 4.089%. The 10-year Treasury note yields US10YT=RR rose 2.1 basis points to 3.511%.
The chance of the Fed raising rates by a quarter point in May has risen to 61% from 48% on Friday. But, by the end of the year, decreases of 40 basis points are expected. FED WATCH
The risky Australian dollar AUD=D3 dropped 0.21% to $0.667. The New Zealand dollar NZD=D3 declined 0.54% to $0.622. Bitcoin BTC= recently declined 1.04% to $28,097.00 in cryptocurrencies. Last night, Ethereum ETH=, ETH=BTSP declined 1.55% to $1,789.48.