© Reuters
Investing.com – The US dollar was steady in early European trade on Friday, but is on track to post strong quarterly gains as traders anticipate the US Federal Reserve will raise interest rates further as the year progresses.
At 02:00 ET (06:00 GMT), the dollar, which measures the greenback against a basket of six other currencies, was trading slightly lower at 102.980, but is on track for gains of around 0.7% in the second quarter.
Powell points to further gains
Fed Chairman Jerome Powell has been very clear over the past few weeks, including the European Central Bank’s annual meeting in Portugal earlier this week, that the US central bank is likely to resume its rate-hiking cycle after stopping in June.
Data released on Thursday showed much more growth than expected in the first quarter, while the data indicated that the labor market remains strong.
“The central bank’s communication at the Sintra conference this week in Portugal remained very hawkish. The underlying message appears to be that low unemployment rates have allowed economies to withstand reasonably large cycles of tightening, which means that inflation has not fallen as much as expected,” analysts at Analysts said. ING, in a note.
“Expectations for the duration and final rates of narrowing courses are further revised. This is being done most credibly in the US, where the economy seems to be outperforming.”
Focus now drops later on Friday to the release of the Fed’s preferred measure of inflation, which is expected to hold steady in May from the previous month, putting pressure on the Fed to keep interest rates high to curb flat inflation.
The Eurozone Consumer Price Index for June is due
Returning to Europe, it rose 0.1% to 1.0874 ahead of the June release for the Eurozone as a whole.
This is expected to fall to 5.6% in June from 6.1% in May, but rose much more than expected in June, and this creates the potential for an upside surprise given the dominance of the German economy.
The European Central Bank chief greatly boosted expectations earlier this week for a ninth consecutive hike in interest rates in July, and that hawkish tone is set to result in gains of around 1.7% for the euro against the dollar this month.
UK gross domestic product
It rose 0.2% to 1.2633, with sterling close to posting a 1.4% monthly gain despite Q1 growth of just 0.1% over the quarter.
However, despite this weak growth, traders continue to raise interest rates more than average as the country’s rate remained at 8.7% in May, the highest rate of any major developed economy.
The Yen is heading for a huge quarterly loss
It fell 0.1% to 144.64, retreating after hitting a high of 145.07 in early Asian trade, its lowest in more than seven months, but still heading for a quarterly loss of more than 8%.
Data on Friday showed a rise of 3.2% in June from a year earlier, again above the Bank of Japan’s 2% target, but new governor Kazuo Ueda said the central bank will maintain its accommodative monetary policy for some time yet.
Elsewhere, the risk-sensitive index rose 0.2% to 0.6629 on speculation that interest rates will be raised next week to curb viscous inflation, while falling to 7.2521 after weaker-than-expected Chinese data.
