© Reuters. FILE PHOTO: US dollar and euro banknotes are shown in this illustration taken on July 17, 2022. REUTERS/Dado Rovik/Illustration
Written by Karen Britel
NEW YORK (Reuters) – The dollar rose on Thursday against the euro after the European Central Bank eased the pace of interest rate hikes, a day after the Federal Reserve raised interest rates by 25 basis points and signaled it may pause further hikes.
The ECB’s 25 basis point increase was the smallest since it began raising them last summer, but the bank also signaled more tightening is needed to tame inflation.
On Wednesday, the Federal Reserve backtracked on the language of its policy statement, saying it “expects” that more interest rate increases will be needed.
The market reaction was relatively muted, with the euro and yen failing to break out of recent ranges against the greenback. The single currency has gained against the dollar in recent months as investors bet that the dollar’s interest rate advantage over the single currency will continue to decline. But analysts said much of that expected move may already be priced in, with the next focus likely when the US central bank begins to cut interest rates.
“Monetary policy dynamics are more or less priced here at this point in terms of the tightening cycle, and now the focus will be on the bets on when the Fed starts easing, how easy it will be and how that correlates,” said Sean Osborne, senior foreign exchange analyst at Scotiabank in Toronto. What (other) central banks are doing.”
It was last up 0.15% on the day at 101.36. The index holds above a one-year low of 100.78 reached on April 14, and has fallen from a 20-year high of 114.78 on September 28.
The euro fell 0.41% to $1.1018. It reached a 13-month high of $1.1096 last week. The dollar also fell 0.34% to 134.17 Japanese yen.
Fed fund futures traders are now pricing in the roughly 62% chance that the Fed will start cutting interest rates by July, according to CME Group’s FedWatch.
Adding to the argument that the Fed will soon start easing monetary conditions is continued fears of turmoil in the banking sector.
Analysts in Morgan Stanley (NYSE:) said, “We think the Fed is done with raising interest rates. But we expect the US dollar to rise,” noting that “declining Treasury yields may herald a risk-free trading environment, implying a higher US dollar in the future.” “.
Analysts said in a report that short-term interest rates are likely to fall due to growing concern about the US banking sector, as the assets of money market funds continue to grow and banks see more deposit outflows.
Shares of Baquest Bancorp and Western Alliance (NYSE: Bancorp) fell on Thursday, prompting other regional lenders to step back, as reports of both banks exploring strategic options stoked investor fears of a worsening financial crisis.
The dollar got a brief boost on Thursday after data showed that US labor costs – the price of labor per unit of output – rose at a 6.3% rate in the first quarter, after rising at a 3.3% pace in the fourth quarter.
“That sent the dollar a little bit higher because it came out a bit higher than expected and it doesn’t really fit into the Fed’s hold story,” Osborne said.
The main economic focus in the US this week will be Friday’s April jobs report, which is expected to show that employers added 180,000 jobs during the month, while average earnings are expected to increase at an annualized rate of 4.2%.
The pound sterling rose in the latest transactions by 0.10% to $ 1.2580, after hitting $ 1.2593 earlier on Thursday, the highest level since June 2022.
The dollar was last down 0.87% against the Norwegian krone at 10.76 after Norway’s central bank raised interest rates by 25 basis points as expected.
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Coin bid prices at 3:05 PM (1905 GMT)
Description RIC Last US Close Pct Change YTD Pct High Bid Low Bid
previous change
a class
Dollar Index 101.3600 101.2300 +0.15% -2.058% +101.6400 +101.0200
EUR/USD 1.1018 USD 1.1063 -0.41% + 2.82% + 1.1091 USD + 1.0986 USD
USD/JPY 134.1700 134.6450 -0.34% +2.35% +134.8700 +133.5000
EUR/JPY 147.83149.06 -0.83% +5.37% +149.2000 +147.1400
USD/CHF 0.8856 0.8843 +0.16% -4.21% +0.8891 +0.8822
GBP/USD 1.2580 USD 1.2566 + 0.10% + 4.01% + 1.2598 USD + 1.2550 USD
USD/CAD 1.3536 1.3616 -0.58% -0.09% +1.3632 +1.3520
AUD/USD 0.6696 USD 0.6671 +0.37% -1.78% + 0.6706 USD + 0.6641 USD
EUR/CHF 0.9758 0.9777 -0.19% -1.38% +0.9812 +0.9746
EUR/GBP 0.8756 0.8803 -0.53% -1.00% +0.8815 +0.8747
NZD 0.6286 NZD 0.6230 +0.90% -1.00% + $0.6298 + $0.6208
dollars / dollars
Dollar / Norway 10.6810 10.7580 -0.87% +8.66% +10.7680 +10.6580
Euro/Norway 11.7703 11.8869 -0.98% +12.17% +11.9252 +11.7590
Dollar / Sweden 10.2402 10.2576 -0.60% -1.61% +10.2910 +10.2213
Euro / Sweden 11.2837 11.3514 -0.60% + 1.20% +11.3750 +11.2790