US Data Remains Robust, Keeping Fed Hawks In Charge‍

A strong run of economic data out of the United States helped support the dollar on Monday, with traders betting that the Federal Reserve will continue to tighten its monetary policy for longer than initially anticipated as the economic data remained strong.

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In Asian trade, the greenback firmed slightly against most major currencies, which sent the sterling down against the dollar. The price of the currency fell by 0.06% to $1.2035. At 134.11 per dollar, it was near the highest level since roughly two months ago when compared with the Japanese yen.

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Having fallen nearly 0.6% last week, the Australian dollar rose 0.17% to $0.6890.

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Due to Presidents' Day, U.S. markets are likely to be quiet on Monday.

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There has been a flurry of data coming out of the world’s largest economy in recent weeks that has shown that the labor market is still tight, inflation is sticking, retail sales are on the rise, and producer prices are going up. The central bank in the U.S. has been expected to do more to contain inflation and raise interest rates.

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“The dollar is likely to track higher during the week ahead given the recent run of economic data that supports the narrative of higher interest rates for the foreseeable future,” said Carol Kong, a currency strategist at the Commonwealth Bank of Australia.

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The Fed funds rate is now expected to peak at just under 5.3% by July, according to the markets.

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A series of hawkish comments made by Fed officials have also contributed to the strength of the U.S. dollar, as they stated that higher interest rates will be required to successfully control inflation in the future.

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In the same manner, two policymakers at the European Central Bank (ECB) said on Friday that interest rates in the eurozone still have a way to go before reaching their peak, which has led to a rise in market pricing for the peak rate of the ECB.

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The euro, however, was down 0.08% at $1.06855 as a result.

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“Given the strength of the dollar, the hawkish ECB comments are unlikely to support the euro,” Kong said.

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Despite losing 0.05%, the U.S. dollar index is up nearly 2% so far this month, keeping its first monthly gain since September on track.

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With eyes on Wednesday's interest rate decision from the Reserve Bank of New Zealand (RBNZ), the kiwi fell 0.07% to $0.6238.

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A half-point interest rate increase to 4.75% is expected to be the RBNZ's only rate increase during its tightening campaign.

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“With inflation so high, not staying the course could lead to even higher interest rates down the road,” said analysts at ANZ.

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The world's second-largest economy showed more signs of recovery from a pandemic-induced slump on Monday, as expected, with China maintaining its benchmark lending rate for a sixth straight month in February.

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There was a marginal decline in the offshore yuan at 6.8741 per dollar, while the onshore yuan was marginally higher at 6.8740 per dollar last bought at 6.8657 per dollar.

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“Maybank analysts continue to expect the People's Bank of China to cut 1 and 5-year loan prime rates by 20bps each this year.”

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“This will help frontload credit support to give additional impetus to the early stages of economic recovery.”