LONDON: The dollar fell Monday, but remained close to its six-week high on Friday as a flurry of economic data bolstered market expectations of tighter monetary policy from the Federal Reserve.
The US dollar index, which measures the dollar against six other major currencies, fell 0.1 percent to 103.91. It is still up almost 1.8 percent for the month, keeping it on track for its first monthly gain since last September. It hit a six-week high of 104.67 on Friday.
Liquidity is expected to be scarce on Monday as US markets are closed for Presidents’ Day.
Data from the world’s largest economy in recent weeks has pointed to a still tight labor market, sticky consumer prices, robust retail sales and higher producer prices, raising expectations that the US central bank needed to do more to contain inflation and that the interest rates rise.
But as markets expect Fed Funds rates to peak at just under 5.3 percent by July, analysts said the dollar’s movement may have run its course.
“The dollar has moved quite a bit this month due to interest rate revisions and the question is how long that will last,” said Chris Turner, Global Head of Markets at ING.
“I would say most of what we call a ‘corrective rally’ in the dollar has been seen,” Turner added.
Hawkish comments from Fed officials also bolstered the US dollar, as they indicated interest rates would need to rise to stop inflation.
Sweden’s krona outperformed after core inflation rose in January, while minutes after the central bank’s last meeting showed that policymakers supported more rate hikes to bring inflation under control.
The euro fell 1.1 percent against the Swedish krona to 11.059 kroner, while the dollar fell 0.8 percent to 10.3604.
“We now see the Riksbank rise 50 basis points in April and 25 basis points in June,” said Torbjörn Isaksson, chief analyst at Nordea, who saw another 25 basis points rise earlier in April.
“This should support the crown and we see it stronger today,” Isaksson added, noting that the European Central Bank (ECB) and the Fed also sounded aggressive.
Two ECB policymakers said on Friday that interest rates in the Eurozone could rise one way or another, driving up market prices for the highest ECB rate.
The euro was little changed against the dollar at $1.0687, just above Friday’s six-week low of $1.06125.
“We think the disinflation process in the US will take another leg in the second quarter, while inflation in Europe is likely to be more stubborn,” said ING’s Turner.
“The euro is likely to remain at a higher level, while we think the dollar will move lower more easily,” Turner added, which he believes could support the euro in the first half of the year.
Against the yen, the dollar fell 0.1 percent to 134. On Friday, it hit a two-month high of 135.12 yen.
The Australian dollar rose 0.4 percent to $0.6909 ahead of the minutes of the Reserve Bank of Australia’s latest policy meeting on Tuesday.
The kiwi was up 0.1 percent to $0.6249 ahead of a Reserve Bank of New Zealand (RBNZ) interest rate decision on Wednesday, where they are expected to taper to a rate hike of half a point.
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