The super dollar closed this Tuesday with little change, after the solid data of inflation revive the likelihood that the Federal Reserve will raise interest rates next week, while fears of spreading turmoil in the banking sector faded.
The dollar index, which measures the greenback’s performance against a basket of six currencies, fell 0.087%, and Treasury yields rose, a day after the two-year note, which moves in step with interest rate expectations, suffered its biggest daily drop since 1987.
The euro was up 0.09% at $1.0739, and the dollar gained ground against the safe-haven yen and Swiss franc.
Federal Reserve funds futures also turned around as the strong probability that the Federal Reserve will remain tight at the end of its two-day policy meeting on March 22 dissipated, according to the CME’s Fed Watch tool. That probability fell to 28.4% from 43.9% on Monday.
Investors disagree on whether high inflation will push the Fed to raise rates again next week, after the failures of Silicon Valley Bank and Signature Bank sent financial markets into turmoil.
US interest rates, higher than those on foreign government debt, have supported the strength of the dollar this year.
“Short-term Fed decisions are more likely to be guided by financial markets and what the financial system really needs, rather than what the inflation mandate demands,” said Brian Daingerfield, co-head of currency strategy for the G-10 at Nat West Markets.
The Consumer Price Index (CPI) rose 0.4% last month, after accelerating 0.5% in January. In the 12 months to February, the CPI rose 6.0%, a slower pace than January’s 6.4% but still far from the Federal Reserve’s 2% target.
The Japanese yen weakened 0.69% to 134.13 per dollar, while the greenback was up 0.15% against the Swiss franc. Meanwhile, sterling was down 0.05% at $1.2175, after rising 1.22% on Monday.
Source: Ambito
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