“We continue to believe that the best of the dollar’s overall rally is behind us, and while the dollar is not yet down significantly, it seems unlikely it will continue to rise,” Scotiabank strategists said in a note to clients.
The “Federal Reserve is fully valued and expectations for rate hikes later in the year may be subject to revision if the economy slows more rapidly than expected,” they said.
The dollar reached a peak of almost two decades above 105 units this monthbut has since receded along with views on the size of the Fed’s likely rate hikes this year, which have been fueled in part by fears of runaway inflation.
Minutes from the Fed’s May meeting, released this week, showed that most participants believed that 50 basis point increases would be appropriate in June and Julybut many thought they could pause later to assess whether tighter monetary policy helps control inflation.
Although inflation persisted in Aprilaccelerated less than in recent months. The personal consumption expenditures (PCE) price index rose 0.2%, the smallest gain since November 2020, after soaring 0.9% in March. In the 12 months through April, the PCE price index advanced 6.3% after 6.6% in March.
The returns of Benchmark Treasuries edged lower on Friday, but bounced briefly from session lows after April’s inflation numbersraising hopes that the worst of the mounting price pressures may have passed.
Another report showed that US consumer spending rose more than expected in April, as households boosted purchases of goods and services.
The main beneficiary of the dollar’s decline was the euro, but the trend has stalled as investors believe that many of the expected rate hikes from the European Central Bank have already been priced in at current levels.
The euro was trading stable at $1.0731, after briefly hitting a one-month high.
Source: Ambito
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