The dollar started the month strongly as a higher-for-longer U.S. rate scenario took center stage. On the other hand, the Australian dollar fell as a slew of economic data indicated a slowing economy and indications that inflation might be past its peak.
Separate data released on Wednesday indicated that the economy of Australia expanded at the slowest rate in a year during the last quarter and that the country’s monthly consumer prices rose less than anticipated in January.
The Aussie drooped in the result of the information to a two-month box, and was last 0.47% lower at $0.6697.
Carol Kong, a currency strategist at Commonwealth Bank of Australia (CBA), stated, “I think market participants will pay a close look to the January CPI indicator in order to gauge the near-term outlook for (the Reserve Bank of Australia’s) policy.”
“However, based on what the RBA said at the most recent meeting, they appear to have already decided and want to raise interest rates further,”
Even though inflation in two of the largest economies in the euro zone unexpectedly rose in February and raised expectations for a rate hike by the European Central Bank (ECB), the euro fell 0.08% to $1.0567 against the dollar.
According to Thierry Wizman, a global FX and rates strategist at Macquarie, “while still-high U.S. inflation augurs more Fed tightening, euro area inflation is higher and stickier in 2023, and the ECB has more tightening to do than the Fed.”
After Britain reached a post-Brexit Northern Ireland trade agreement with the European Union, sterling fell 0.02 percent to $1.2015, reversing a 1 percent increase at the beginning of the week.
Rishi Sunak, the British prime minister, visited Northern Ireland on Tuesday and then met with his own lawmakers to promote the new agreement.
The U.S. dollar index rose 0.09 percent to 105.07 against a basket of currencies, its first monthly gain since September. In February, it gained nearly 3 percent.
Market expectations of a higher peak in U.S. interest rates have increased as the Federal Reserve fights to tame inflation, supported by a slew of strong economic data released in recent weeks and the resilience of the world’s largest economy.
Prospects evaluating presently recommends a pinnacle of around 5.4% in the Fed finances rate by September.
Michael Every, a global strategist at Rabobank, stated, “We see the Fed going to 5.5%, with a growing risk of 6%.” The Federal Reserve is raising interest rates. Others cannot match or follow. The dollar will skyrocket.”
In other areas, the dollar gained 0.12 percent to 136.38 against the Japanese yen, its largest monthly gain since June. In February, the dollar surged close to 5 percent against the yen.
The Kiwi lost 0.28 percent to $0.6167, and the Chinese offshore yuan lost a little bit to 6.9603 dollars.
The official manufacturing PMI for China for February is scheduled to be released later on Wednesday. Factory activity in the world’s second-largest economy is anticipated to have continued to rise last month.
According to Kong of the CBA, “I would expect a solid report in the PMI readings today in China, but I doubt a strong report would give a big boost to the yuan, just given the fact that markets appear to be focused on the near-term outlook for FOMC policy, which is still in favor of the U.S. dollar.”
