Title: Dollar Strengthens as Federal Reserve Leaves Room for Rate Hikes
Subtitle: Norwegian Crown Rises on Expected Interest Rate Hike
Date: August 17, 2022
By: [Author’s Name]
LONDON/SINGAPORE – The U.S. dollar remained near a two-month high on Thursday following the release of the Federal Reserve Minutes, which indicated the possibility of further rate hikes. Additionally, recent data showcasing the resilience of the U.S. economy further supported the currency.
The Norwegian crown saw a rise from six-week lows against the dollar and the euro after the Norges Bank confirmed expectations by raising interest rates and expressing the likelihood of another hike in September.
The U.S. dollar index slightly declined by 0.05% to 103.41 after reaching a two-month high of 103.59.
The greenback has found support from a series of robust U.S. economic data, strengthening the belief that interest rates will remain high in the foreseeable future.
In a report released on Wednesday, it was revealed that single-family home building in the U.S. experienced a surge in July, with permits for future construction also witnessing a rise. Furthermore, U.S. factory production unexpectedly rebounded last month, adding to the positive sentiment surrounding the dollar.
“We’ve got the U.S. staying really resilient still, under the weight of high interest rates,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia (CBA). She also highlighted that inflation, which remains stubbornly above the 2% target, will prompt the Fed to maintain its restrictive monetary policy.
The July policy meeting minutes from the Federal Reserve showed a division among officials regarding the need for additional rate hikes, considering the potential risks to the economy if rates were pushed too far.
Against the dollar, the Norwegian crown experienced a 0.4% increase to 10.5750 after briefly falling to as low as 10.66 earlier in the session. It also rose 0.3% against the euro to 11.5000, after hitting its lowest level since July 10.
Meanwhile, the Japanese yen saw a 0.1% increase to 146.14 after weakening to 146.565 per dollar, its lowest level since November. The yen has faced renewed pressure due to interest rate differentials between the United States and Japan’s ultra-low rate environment.
The Australian dollar and its New Zealand counterpart both experienced declines, with the Australian dollar sinking to a nine-month low. This followed surprising data that revealed a fall in employment in Australia during July, along with an increase in the jobless rate. The Australian dollar fell to $0.6401 and tumbled by more than 0.9% to a trough of $0.6365 following the employment data release.
Speculation has now arisen that the Reserve Bank of Australia (RBA) may halt further interest rate hikes, given the softer employment readings.
Amidst persistently weak data from China and the easing measures by the People’s Bank of China, Matt Simpson, senior market analyst at City Index, explained, “They’re done at 4.1% as far as I’m concerned now, with persistently weak data from China and easing from the (People’s Bank of China) adding to the case of a peak rate.”
The euro remained flat at $1.0875 after falling to a six-week low of $1.0862. Sterling, on the other hand, remained steady against the euro at 85.40 pence following a surge to a one-month high on Wednesday due to British inflation data. Despite a sharp decline in Britain’s headline inflation rate, key measures of price growth monitored by the Bank of England (BoE) failed to ease in July, leading to increased expectations that the BoE will keep rates higher for an extended period.
The Thomson Reuters Trust Principles apply to this article.
[Reporting by Joice Alves in London and Rae Wee in Singapore; Editing by Angus MacSwan]