By Rae Wee
SINGAPORE, Feb 20 (Reuters) – The dollar was higher on Monday, helped by a strong set of economic data out of the United States that traders are betting will keep the Federal Reserve on its monetary tightening path longer than originally expected become .
The greenback edged higher against most majors in Asian trading, sending the sterling down 0.06% to $1.2035. Against the Japanese yen, the dollar was near a two-month high at 134.11.
The Aussie rose 0.17% to $0.6890 after falling almost 0.6% last week.
Trading is likely to be thin on Monday as US markets are closed for President’s Day.
A flurry of data from the world’s largest economy over the past few weeks pointing to a still-tight labor market, persistent inflation, resilient retail sales and higher producer prices have raised expectations that the US Federal Reserve will need to do more to to tame inflation and that interest rates would have to rise.
“In the coming week, the dollar may rally higher on recent economic data supporting the narrative of longer higher interest rates,” said Carol Kong, currency strategist at the Commonwealth Bank of Australia.
Markets now expect the Fed’s interest rate to peak at just under 5.3% by July.
Hawkish comments from Fed officials have also bolstered the US dollar as they signaled that interest rates would need to rise to successfully contain inflation.
Similarly, two policymakers at the European Central Bank (ECB) said on Friday that euro-zone interest rates have yet to rise some, pushing market prices for the ECB’s top rate higher.
However, that did little to lift the euro, which fell 0.08% to $1.06855.
“The ECB’s hawkish statements are unlikely to be supportive of the euro given the strength of the dollar,” Kong said.
Elsewhere, the US dollar index slipped 0.05% to 103.93 despite being up almost 2% month to date, keeping it on track for its first monthly gain since last September.
The kiwi fell 0.07% to $0.6238 ahead of the Reserve Bank of New Zealand’s (RBNZ) interest rate decision on Wednesday.
The RBNZ is expected to scale back its tightening campaign only slightly, with a half-point rate hike to 4.75%.
“With inflation this high…it could mean that if they don’t stay on course, even higher interest rates are needed along the way,” analysts at ANZ said.
In Asia, China on Monday kept interest rates unchanged in February for the sixth straight month as expected, with the world’s second-largest economy showing more signs of recovery from a pandemic-related slump.
The offshore yuan was last marginally lower at 6.8741 per dollar, while the onshore yuan was last bought at 6.8657 per dollar.
“We continue to expect the People’s Bank of China to cut 1-year and 5-year interest rates by 20 basis points each this year,” Maybank analysts said.
“This will help bring forward credit support to add momentum to the early stages of economic recovery.”
(Reporting by Rae Wee Editing by Shri Navaratnam and Sam Holmes)
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