LONDON: The dollar edged lower on Monday but kept close to Friday’s six-week high, after a flurry of economic data reinforced market expectations of tighter monetary policy from the Federal Reserve.
The US dollar index, which measures the dollar against six other major currencies, slipped 0.2% to 103.81. It is still up almost 1.8% for the month, on track for its first monthly gain since September. It hit a six-week high of 104.67 on Friday.
Liquidity is expected to remain thin on Monday, with US markets closed for Presidents’ Day.
Data from the world’s largest economy in recent weeks has pointed to a still-tight labour market, sticky consumer prices, robust retail sales and higher producer prices, raising expectations the US central bank has more to do to tame inflation, and that interest rates will rise.
But with markets expecting the Fed funds rate to peak just under 5.3% by July, analysts said the move in the dollar may have run its course.
“The dollar has had quite a big move this month on the back of rates repricing and the question is how much further that’s going to run,” Chris Turner, global head of markets at ING said.
“I’d say the majority of what we’re calling a ‘corrective rally’ in the dollar has been seen,” Turner added.
Hawkish comments from Fed officials have also underpinned the US dollar, as they signalled interest rates would need to rise to quash inflation.
Sweden’s crown outperformed after core inflation ticked up in January, while minutes from the central bank’s last meeting showed policymakers backed more rate hikes to bring inflation under control.
The euro fell 1.1% against the Swedish crown to 11.05 crowns while the dollar was down 1% to 10.3405.
“We now see the Riksbank hiking by 50 basis points in April and 25 basis points in June,” said Torbjörn Isaksson, chief analyst at Nordea, who previously saw one more 25 basis point rise in April.
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