The US dollar on Friday rose against the euro and sterling, to reach its biggest weekly gain since February, as investors shifted to safe havens after consumer sentiment data fueled concern about the US debt ceiling and monetary policy.
A University of Michigan survey on Friday showed that May US consumer sentiment slumped to a six-month low on worries that a political dispute over raising the federal government’s borrowing cap could trigger a recession.
Consumers’ long-term inflation expectations rose to their highest since 2011. That could influence the US Federal Reserve, which signaled last week that it could pause its interest-rate hikes.
Photo: EPA-EFE
“Rate differentials are continuing to tilt in the dollar’s favor,” said Karl Schamotta, chief market strategist of Corpay in Toronto. “The surprises in the University of Michigan consumer sentiment survey are painting sort of a stagflationary picture for the US economy, and one that could justify another rate hike at the June Fed meeting, but certainly will diminish odds of rate cuts in the latter half of the year.”
Data also showed US consumer price index inflation cooling to 4.9 percent year-on-year last month. Moreover, weekly jobless claims rose more than expected, but the labor market remains tight, with 1.6 job openings for every unemployed person in March, well above the 1-1.2 range consistent with a market not generating too much inflation.
US Fed Governor Michelle Bowman said that the central bank would probably need to raise rates further if inflation stays high.
The pound fell 0.5 percent to US$1.2448, while the euro weakened 0.59 percent to US$1.0853, a day after falling to a one-month low.
That left the dollar index up 0.63 percent at 102.71, notching a weekly gain of 1.47 percent — its biggest weekly rise since February.
The New Taiwan dollar fell against the US dollar, losing NT$0.020 to close at NT$30.758, down 0.38 percent from NT$30.641 last week.
Joe Manimbo, senior market analyst at Convera, said that elevated US inflation spurred some skepticism about the Fed’s year-end rate cuts, and that the view that other central banks might be closer to pausing rate hikes as well has weighed on European currencies.
“Dollar gains this week have been multidimensional. The buck has served as a safe harbor from worries about a weak Chinese economy and volatility on Wall Street,” Manimbo wrote. “While stronger, it’s too soon to tell whether the dollar’s run of weakness has turned the corner. Markets would need to take rate cuts off the table to lend meaningful upside traction to the greenback.”
Additional reporting by staff writer, with CNA
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