LONDON: The dollar edged lower on Monday but remained close to Friday’s six-week high, after a flurry of economic data bolstered market expectations of Federal Reserve monetary policy tightening.
The U.S. dollar index, which measures the dollar against six other major currencies, slipped 0.1% to 103.91. It’s still up nearly 1.8% 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 thin on Monday as US markets are closed for Presidents Day.
Data from the world’s largest economy in recent weeks has indicated a still tight labor market, sticky consumer prices, robust retail sales and higher producer prices, raising fears that the US central bank has more to do to bring inflation under control and interest rates to rise.
But with markets expecting the federal funds rate to peak at just under 5.3% by July, analysts said the dollar’s move may have run its course.
“The dollar has had quite a big move this month because of the rate review and the question is how far it will go,” said Chris Turner, global head of markets at ING.
“I would say the majority of what we call a ‘corrective rally’ in the dollar has been seen,” Turner added.
Belligerent comments from Fed officials also supported the US dollar as they signaled that interest rates would need to rise to stifle inflation.
The Swedish krona outperformed after core inflation rose in January, while minutes from the central bank’s latest meeting showed policymakers backed more rate hikes to tame inflation.
The euro fell 1.1% against the Swedish krona to 11.059 crowns while the dollar fell 0.8% to 10.3604.
“We now see the Riksbank rising 50 basis points in April and 25 basis points in June,” said Torbjörn Isaksson, chief analyst at Nordea, which previously posted an additional 25 basis points rise in April.
“That should support the krona and we see it stronger today,” Isaksson added, while noting that the European Central Bank (ECB) and the Fed also sounded hawkish.
Two ECB policymakers said on Friday that interest rates in the euro zone had some way of rising, which would drive up market prices for the ECB’s peak rate.
The euro was little changed against the dollar at $1.0687, just above Friday’s six-week low of $1.06125.
“We believe the disinflation process in the US will have another stage in the second quarter, while in Europe inflation should be more rigid,” ING’s Turner said.
“Euro rates will likely remain at higher levels, as we believe dollar rates will come down more easily,” added Turner, who he said could support the euro in the first half.
The dollar was down 0.1% against the yen at 134. It hit a two-month high at 135.12 yen on Friday.
The Australian dollar rose 0.4% to $0.6909 ahead of the minutes of the Reserve Bank of Australia’s latest policy meeting on Tuesday.
The kiwi rose 0.1% to $0.6249, ahead of a rate decision by the Reserve Bank of New Zealand (RBNZ) on Wednesday, where they are expected to cut to a half-point rate hike of interest.