© Reuters. FILE PHOTO: US dollar and euro banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/File Photo
By Gertrude Chavez-Dreyfuss and Laura Matthews
NEW YORK (Reuters) – The US dollar held gains against a basket of currencies on Thursday, buoyed by stronger-than-expected producer prices and falling jobless claims, suggesting the Federal Reserve will have to maintain its interest rate hikes to combat inflation for longer.
Previously reached six-week highs, rising to six-week highs also against the yen, euro and Australian dollar. In the afternoon, the dollar fell back and traded within tight ranges.
The US Producer Price Index rebounded to 0.7% in January, after falling 0.2% in December. Meanwhile, jobless claims unexpectedly fell to 194,000, compared with an expected 200,000 claims, according to a Reuters poll.
“Strong PPI data and aggressive speech from Cleveland Fed President (Loretta) Mester have further raised rate expectations and this is key to the dollar’s move higher today,” said John Velis, macro strategist and of BNY Mellon (NYSE:) Markets in New York.
Mester said in a speech that the Fed “has come a considerable way in moving policy from very accommodative to very tight, but I think we have more work to do.”
BNY’s Velis said stronger labor market data and sticky inflation certainly solidified the “higher longer” school of thought on rates.
In afternoon trade, the dollar index rose 0.2% to 103.93, after hitting a six-week high of 104.24. That being said, it is still more than 11% above the 20-year low from late September.
Against the yen, the US dollar also hit a six-week high, but fell 0.1% to 133.94. Yen traders are waiting for a speech by Kazuo Ueda, the candidate to become the next Bank of Japan governor, at a confirmation hearing in the lower house of parliament on February 24.
The interest rate futures market shows that US rates could peak near 5.25% in July before falling to 5.0% by the end of the year.
Thursday’s data followed strong economic numbers on Tuesday and Wednesday.
Data from the US Department of Commerce showed on Wednesday that US retail sales rebounded sharply in January after two consecutive monthly declines.
That came just a day after US inflation figures showed consumer prices were slowing but still holding tight. Data from earlier this month also showed that US job growth accelerated considerably in January, pointing to a resilient economy.
However, the question for market watchers is how well the economy can hold up, especially when rates go much higher than many originally thought.
Sterling fell 0.5% to $1.1985, after shedding more than 1% on Wednesday.
British inflation slowed more than expected in January and there were signs that price pressures are cooling in parts of the economy, such as services, which are closely watched by the Bank of England (BoE).
The BoE has already indicated that it may stop raising rates in March and inflation data on Wednesday reinforced that view.
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Forex Bid Prices at 16:28 (21:28 GMT)
Description RIC Last US YTD Closing Percent Change Percent High Bid Low Bid
previous change
Session
Dollar Index 103.9300 103.8000 +0.15% 0.425% +104.2400 +103.5200
Euro/Dollar $1.0671 $1.0688 -0.15% -0.40% +$1.0723 +$1.0655
Dollar/Yen 133.9450 134.1600 -0.16% +2.16% +134.4600 +133.6050
Euro/Yen 142.94 143.39 -0.31% +1.88% +143.4400 +142.8600
Dollar/Switzerland 0.9257 0.9238 +0.24% +0.14% +0.9271 +0.9215
British Pound/Dollar $1.1984 $1.2038 -0.47% -0.92% +$1.2074 +$1.1966
Dollar/Canada 1.3458 1.3396 +0.47% -0.66% +1.3479 +1.3359
Aussie/Dollar $0.6875 $0.6907 -0.46% +0.86% +$0.6936 +$0.6841
Euro/Switzerland 0.9877 0.9873 +0.04% -0.18% +0.9886 +0.9866
Euro/Pound 0.8901 0.8884 +0.19% +0.64% +0.8910 +0.8871
NZ $0.6253 $0.6281 -0.44% -1.52% +$0.6309 +$0.6233
dollar/dollar
Dollar/Norway 10.2580 10.2090 +0.22% +4.25% +10.3090 +10.1565
Euro/Norway 10.9491 10.9083 +0.37% +4.34% +10.9870 +10.8780
Dollar/Sweden 10.4476 10.4135 +0.13% +0.38% +10.4945 +10.3734
Euro/Sweden 11.1507 11.1364 +0.13% +0.01% +11.1851 +11.1192