The Dollar Is on Track to Gain Ground This Week
The dollar posted its best performance in a month as comments from Fed officials and strong retail sales data suggested an accelerated decline in inflation.
A 0.4% drop in sterling overnight following investors’ disappointment with Britain’s budget for tax increases and spending cuts also helped it.
Fed President James Bullard was the latest Fed official to deny market expectations for a pause in rate hikes, saying that even under dovish assumptions, the fund’s rate needs to rise to at least 5-5.25132% to curb inflation, up from 3.75-4% currently.
More pessimistic assumptions would suggest that it rises above 7%.
The dollar gained slightly against the yen after Bullard’s comments, gaining about 1.2 percent to 140.36 yen this week. It also gained 0.9% against the Aussie overnight to $0.6690 per Aussie, continuing its first weekly gain against the Aussie since mid-October.
The U.S. dollar index rose about 0.112 percent to 106.53 this week, the U.S. dollar’s biggest weekly decline, on expectations that interest rate hikes will end an era of floating exchange rates as inflation in The US has stabilized after a slight wobble.
Fed funds futures pricing currently predicts a peak rate just below 5% and rates beginning to fall by late 2023. The Fed will meet again on December 13-14.
Stronger-than-expected retail sales data earlier this week shook hopes of a halt to growth, suggesting consumers are still in a spending mood.
In Japan, data showed that consumer prices are rising at the fastest rate, potentially putting pressure on authorities to ease off on ultra-easy monetary policies, but the yen reacted slowly. Later that day, British retail sales data will become public, and European Central Bank President Christine Lagarde will be one of several policymakers speaking.
The New Zealand dollar was steady at $0.6153 as traders focused on next week’s central bank meeting in Wellington, where markets are split on whether a 50-basis-point or 75-basis-point hike is on the cards.