Dollar rebounds from one-year low as Fed officials talk up further hikes By Investing.com

Written by Yassin Ibrahim

Investing.com – The US dollar rebounded from a one-year low as bets on a rate hike in May jumped after Federal Reserve officials indicated there was no willingness to raise the white flag on more rate hikes as inflation remains so high .

The dollar, which measures the greenback against a basket of six major heavy currencies, rose 0.56% after falling intraday to 100.47, its lowest level since April.

Federal Reserve Governor Christopher Waller on Friday called for more interest rate hikes, saying the job on inflation is “far from over” as inflation remains “very high”.

“In reaction to his rhetoric, market pricing of the path of interest rates pushed the probability of a 25 basis point hike at the May meeting to All but Certain and raised the probability of a June hike from negligible to around 15%,” Morgan Stanley said in a note. .

Investing.com showed that bets for a 25% rate hike at the Fed’s May meeting jumped to 84% from 65% last week.

The hawkish comments arrived just days after data showed headline inflation fell more than expected, but core inflation, which excludes volatile food and energy prices and is closely watched by the Federal Reserve, held steady.

“I interpret this data as indicating that we haven’t made much progress on our inflation target, which leaves me roughly in the same place on the economic outlook that I was at the last FOMC meeting, and on the same path for monetary policy,” Waller added.

In recent weeks, investors have focused more on the pace of credit tightening amid expectations that lending cuts will dampen economic growth, supporting the Federal Reserve in its fight against inflation.

But Waller said financial conditions have not tightened significantly, adding that a strong and tight labor market as well as above-target inflation means that “monetary policy needs to tighten further.”

While bets have jumped on another rate hike, investors are still holding onto expectations that the Federal Reserve will have to cut interest rates later this year.

“Rate cuts later this year remain flat, with little change in the expected level of the December 2023 federal funds rate over the past two weeks,” Morgan Stanley added.