Last week, the dollar index gained around 1.3 percent which has been its highest since March 16. Investors have predicted the possibility of as many as two US rate hikes in 2016.
James Bullard, Fed President at St Louis, has predicted the possibility of a rate hike coming as soon as next month. Bullard also indicated the possibility of improvements in the labor market. His remarks have definitely raised the prospects of more interest rate hikes than the market was originally anticipating.
Talking about inflation, Bullard said, “I’d like to be confident that inflation expectations are stabilizing, and hopefully increasing.”
On the other hand, Patrick Harker, Fed President at Philadelphia, is hoping for at least three hikes by the end of this year.
Earlier in the month, the Feds had almost halved their expectations of a rate hike from four to just two. Those views had aided in the recovery of the dollar after a substantial knockout earlier in the month.
This week, a host of US indicators will give investors a chance to assess whether or not the US economy is robust enough to put up with a series of rate hikes.
According to chief Japan FX strategist at Bank of America Merrill Lynch in Tokyo, Shusuke Yamada, “The dollar’s near-term performance will hinge on data.” He added that most notably it is going to be “Friday’s Japanese tankan, U.S. non-farm payrolls and the manufacturing PMI.”
Other US data which is likely to have an impact on the dollar include this week’s core personal consumption expenditures price (PCE) index along with Thursday’s Chicago purchasing management index (PMI).
Global trading turned out to be feeble last week since many key markets, including the US, the UK and Australia, remained closed on account of Good Friday. Some will remain closed even on Monday in recognition of Sunday’s Easter holiday.
Reuters reported that the dollar fell flat in US trading on Thursday afternoon on account of “pre-holiday positioning” and after data came out showing a fall in US durable goods orders along with a slight rise in the number of Americans signing up for unemployment benefits.
Prior to that, the greenback had hit an eight-day hike at 96.364.
The dollar index, tracked against a basket of six currencies, gained as much as 1.1 percent for the week. While the greenback recessed 0.1 percent against the yen at 112.83, it still gained 1.1 percent for the week.
Data revealed that Japan’s consumer inflation has been flat due to a block in price growth owing to weak consumption and low energy costs. The Bank of Japan has been under a lot of pressure to add more stimulus despite the fact that it had already eased policy less than two months ago.
The euro edged down 0.1 percent to $1.1162 after its one-month peak to $1.1342. Reuters reported that the euro was on track to drop down by almost 0.9 percent following the terrorist attacks on Brussels.
After the attack, the sterling also edged down about 2.4 percent for the week. The Belgium attacks have further exacerbated the possibility of Britain exiting the European Union.