© Reuters. Banknotes of the Japanese yen and the US dollar are seen in this illustration photo taken on June 15, 2022. REUTERS/Florence Low/Illustration
Written by Chuck Mikolajczak
NEW YORK (Reuters) – It jumped to a two-week high on Thursday after economic data showed the labor market remained on a solid footing, giving the Federal Reserve potential support to continue raising interest rates.
Initial weekly jobless claims fell by 26k to a seasonally adjusted 239k, the biggest drop in 20 months and below the forecast of 265k economists polled by Reuters.
In addition, the Commerce Department revised its estimate for first-quarter GDP to 2%, up from 1.3% in May and higher than the previous estimate of 1.4%.
Federal Reserve Chairman Jerome Powell, speaking Wednesday at the European Central Bank (ECB) conference, did not rule out a rate hike at the Fed’s July meeting, indicating that more rate hikes are coming from the central bank.
He said he does not see inflation fall to the Fed’s 2% target until at least 2025.
In addition, Atlanta Fed President Rafael Bostick said Thursday that the Fed will have to raise interest rates if price growth moves off target, or inflation expectations start to move “in a difficult way.”
Other central bank chiefs at the meeting, including European Central Bank President Christine Lagarde and Bank of England Governor Andrew Bailey, also supported further rate hikes, with the exception of Bank of Japan (BOJ) President Kazuo Ueda.
“For now, the economy remains resilient in the face of all the tightening that we’ve seen, and it suggests that the Fed and others will have to stick around,” said Huw Roberts, head of analytics at Quant Insight.
Earlier data in Europe showed that German inflation rose more than expected in June, ending what had been a steady decline since the beginning of the year, while inflation eased in Spain and Italy.
“The latest numbers… suggest flat inflation, at least at the core level if not the core level, and that was true in Europe as well,” Roberts said. “Look at Spanish core inflation, and German too – that speaks to central banks that are still working.”
He added that positioning based on the quarter and end of the month by investors may also influence price action.
The dollar index rose 0.204% to 103.150, after earlier rising to 103.44, its highest since June 13.
Market expectations for the Fed to hike by 25 basis points at its July meeting rose to 86.8% after the data versus 81.8% in the previous session, according to CME’s FedWatch tool.
The dollar strengthened against the Japanese yen for the third day in a row, hitting a new 7-1/2-month high of 144.90, as US and Japanese central bank policy plans are expected to remain at opposite ends of the spectrum.
The yen fell 0.07% against the dollar, to 144.59 per dollar. Investors are watching to see if the Bank of Japan will intervene in the currency again, which last happened at around the 145 mark.
The Swedish crown hit a record low of 11.8502 against the euro after the Riksbank raised interest rates slightly and increased the pace of bond sales.
The Swedish krona was last down 0.47% at 11.81 per euro.
