Dollar Advances, First Weekly High in Over a Month By

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By Peter Nurse – The dollar gained in early European trading on Friday, looking to post its first weekly gain in more than a month amid growing expectations that the Federal Reserve will tighten monetary policy next month.

By 09:05 AM ET (0905 GMT), the currency index against a basket of six other major currencies was up 0.1% at 101,720, on track for a weekly gain of around 0.3% after five straight weeks of losses.

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Comments from several Fed policymakers this week suggest that the US central bank will raise interest rates by 25 basis points in early May, believing that inflation remains an issue and that monetary policy needs to tighten further.

However, this could be the last rally of the cycle, as economic data points to a slowdown in the US economy and money markets expect rate cuts as early as July and into the end of the year.

Today the preliminary figures for April will also be released, which will shed more clarity on the overall economic situation of the world’s largest economy.

The pair fell by 0.2% to the level of 1.0947, awaiting the release of the manufacturing PMI and the services of several countries in the eurozone.

Although surveys on the manufacturing sector put it in contraction territory, the services sector is expected to remain strong, which should add to inflationary pressure.

European Central Bank President Christine Lagarde said Thursday that the European Central Bank’s monetary policy “still has some way to go” to bring inflation back to its 2% target, in a sign that more is to come.

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“The ECB news is slightly supportive of the euro, but the international environment is not yet in favor of a significant push above 1.10 for EUR/USD,” ING (AS:) analysts say in a note.

The pair fell 0.3% to 1.2403, after UK prices fell 0.9% more than expected in March compared to February, as British consumers were affected by March’s higher rate which remained in double digits.

On the other hand, the pair fell by 0.8% to the level of 0.6688, and left by 0.3% to 133.88, with limited losses after knowing that they had grown more than expected in March, while recording them at a slower rate than expected.

The pair is set to rise 0.3% to 6.8948 as the yuan weighed after reports that China’s main manufacturing sector was still struggling with somewhat sluggish demand.

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