Written by Lei Wee
SINGAPORE (Reuters) – The dollar rebounded on Friday for a second consecutive week of gains as a better-than-expected U.S. economy dampened investors and policy makers' expectations for the Federal Reserve's rate-cutting trajectory this year. I was heading towards
The U.S. dollar's 0.17% gain this week was tempered somewhat by a slight stalling in gains since Thursday following an unusual warning from the finance chiefs of the United States, Japan and South Korea against sliding currencies in the latter two. . Collaborative intervention.
Asian currencies in particular are under significant pressure from a strong dollar.
“It's symbolic that the two countries have issued a joint statement,” said Carol Conn, currency strategist at the Commonwealth Bank of Australia (CBA).
“Given recent developments, the possibility of a joint Asian currency intervention has certainly increased. It remains to be seen whether the US will participate in that intervention, as ultimately a stronger US dollar will only help the FOMC fight inflation. is” . ”
The yen was last little changed at 154.61 yen to the dollar, languishing near a 34-year low and from the 155 yen level, which traders see as a new line in the sand that could prompt Japanese government intervention. It's not far.
Ahead of the Bank of Japan's (BOJ) monetary policy meeting next week, Japan's currency is expected to fall more than 0.8% in the week, having fallen 2% so far this month.
Bank of Japan Governor Kazuo Ueda said Thursday that the central bank could raise interest rates again if the weaker yen significantly pushes up inflation, warning that currency movements could influence the timing of the next policy shift. emphasized.
Elsewhere, the pound fell 0.08% to $1.2427, and is expected to fall 0.18% this week. The euro fell 0.06% to $1.0637, on track for a slight decline for the week.
While speculation of the Fed's first rate cut has been pushed back until later in the year, traders expect the European Central Bank to begin a rate-cutting cycle in June, which will likely keep the common currency weaker for some time.
“Once the ECB starts cutting interest rates, it is clear that central banks around the world will face a divergence in their monetary easing cycle, which will only worsen the dollar's strength against the euro and other major currencies,” CBA's Kong said. ” he said.
Federal funds futures now indicate that the U.S. central bank is pricing in rate cuts this year of just about 40 basis points (bps), down from the 160 basis points (bps) expected at the beginning of the year. is retreating.
The change in interest rate expectations comes on the back of persistent inflationary pressures and a number of resilient U.S. economic indicators that have repeatedly exceeded expectations.
It also led Fed policymakers to back off bets on U.S. interest rate cuts starting as early as June, with Chairman Jerome Powell similarly warning earlier this week that monetary policy would remain restrictive for a longer period of time. said it was necessary.
“We still believe the FOMC will begin lowering rates before the end of the year, although policy easing may be a little slower than previously expected,” Wells Fargo economists said. “We expect inflation to trend downward throughout the year, but progress will be gradual.”
Against a basket of currencies, the dollar rose 0.05% to $106.22, hovering around $106.51, its highest in more than five months.
The Australian dollar fell 0.15% to $0.6411, on track for a weekly decline of more than 0.8%.
Thursday's figures showed domestic employment rose sharply last month but fell in March, but the unemployment rate is back on the rise and a relatively tight labor market is still easing, albeit at a slower pace. It shows that there is.
The New Zealand dollar fell slightly by 0.1% to $0.5895, and was expected to fall by a similar 0.7% for the week.
(Reporting by Rae Wee; Editing by Sonali Paul)