Dollar Gains After A Hawkish FOMC

RTTNews | 142 days ago
Dollar Gains After A Hawkish FOMC

(RTTNews) - A hawkish Fed that scaled back rate cut expectations boosted the U.S. dollar during the week ended June 14. The dollar also benefitted from weakness in the euro beset by political uncertainty in France and the yen's prospects hurt by a dovish monetary policy update from the Bank of Japan. The Dollar gained against the euro, the British pound and the Japanese yen but weakened against the Australian dollar, the Canadian dollar, the Swedish krona and the Swiss franc.

The Dollar Index or DXY added 0.63 percent during the week ended June 14. The Index which was at 104.89 on June 7 rallied over the course of the week to close at 105.55. The DXY opened the week at 104.93 in the backdrop of the stronger-than-expected job market update in the previous week. However, it dropped to a low of 104.26 on Wednesday as markets cheered the softer-than-expected U.S. CPI numbers for the month of May.

Headline annual CPI which was seen steady at 3.4 percent declined to 3.3 percent. The core component which was seen edging down to 3.5 percent from 3.6 percent in the previous month actually declined to 3.4 percent. The month-on-month reading which was expected to fall to 0.1 percent from 0.3 percent in the previous month surprisingly showed a flat reading. Its core component which was seen steady at 0.3 percent edged down to 0.2 percent beating market expectations.

However, the Fed's hawkish guidance that accompanied the FOMC on Wednesday afternoon eclipsed the jubilation in markets that followed the softer-than-expected CPI update earlier in the day. The Federal Reserve, in its review on Wednesday decided to maintain the target range for the Federal funds rate at 5.25 to 5.5 percent for the 7th straight meeting. It hinted at just one rate cut in 2024 and four cuts in 2025. The Fed had at the time of the previous FOMC in March hinted at three rate cuts in 2024. The Fed also raised its inflation forecast for 2024 to 2.6 percent from 2.4 percent projected in March.

The Dollar Index rallied further on Friday to touch the week's high of 105.81 amidst the euro, which has a weight of 57.6 percent in the index and the yen, which has a weight of 13.6 percent in the index weakening further.

Political uncertainty triggered by the snap elections in France rattled the euro and pressured the EUR/USD pair to slip 0.93 percent during the week. The pair closed at 1.0700 versus 1.0800 a week earlier. The pair which had touched the week's high of 1.0853 on Wednesday tumbled to a 1.0668 on Friday, giving the euro its worst week in two months.

The Fed scaling back rate cut hints lifted the Dollar against the pound sterling. The GBP/USD pair dropped 0.31 percent over the course of the week to close at 1.2682 versus 1.2721 on the previous Friday. The pair touched a high of 1.2862 on Wednesday but dropped to 1.2656 on Friday. Meanwhile, concerns about the Bank of England's looming interest rate decision swayed sentiment amidst data that showed an unexpected uptick in unemployment and an expected stagnation in GDP growth.

The greenback however retreated against the Aussie during the past week. The AUD/USD pair which had closed at 0.6582 on June 7 rallied to 0.6614 by June 14, recording a gain of 0.49 percent. The pair ranged between the low of 0.6575 recorded on Monday and the high of 0.6705 recorded on Wednesday. Employment data released on Wednesday had showed an employment change of 40 thousand and unemployment rate falling to 4 percent.

The dovish monetary policy update by the Bank of Japan late on Thursday added to the yen's weakness. The USD/JPY pair rose 0.43 percent during the week, rising to 157.37 on June 14 from 156.70 a week earlier. The pair ranged between the low of 155.72 recorded on Wednesday and the high of 158.27 recorded on Friday.

Ahead of the release of the Retail Sales reading, the Dollar index is flat near 105.52. The EUR/USD pair is currently hovering near 1.0716. The GBP/USD pair has decreased to 1.2672 ahead of the inflation update on Wednesday, the Bank of England's interest rate decision due on Thursday as well as the release of the Retail sales data on Friday. The AUD/USD pair is at 0.6597 ahead of the Reserve Bank of Australia's interest rate decision due on Tuesday. The USD/JPY pair has also rallied to 157.88.

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