By Rae Wee
SINGAPORE (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 tightening path longer than originally expected.
The greenback rose across the board in early Asian trade, sending the sterling up 0.12% to $1.2028 and the Aussie up 0.18% to $0.6866.
Against the Japanese yen, the dollar rose 0.14% to 134.32.
Trading is likely to be thin on Monday as US markets are closed for President’s Day.
A slew of data from the world’s largest economy over the past few weeks, pointing to a still-tight labor market, persistent inflation, robust retail sales growth and higher monthly producer prices, have raised market expectations that the US Federal Reserve will make more do to tame inflation and that interest rates must rise.
“In the week ahead, 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 (CBA).
Markets now expect the Fed’s interest rate to peak at just under 5.3% by July.
Hawkish comments from Fed officials have also supported the US dollar as they signaled that interest rates must 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 was last down 0.16% at $1.0677.
“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 rose 0.05% to 104.03 and is up almost 2% month-to-date, keeping its first monthly gain since last September on course.
The kiwi slipped 0.17% to $0.6232 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, focus is on China’s interest rate decision on Monday, with markets widely expecting benchmark interest rates to remain unchanged at the monthly determination.
“We don’t think any changes will be made,” CBA’s Kong said. “In our view, the (Chinese) government should announce further easing measures to support the Chinese recovery.”
The offshore yuan was last marginally lower at 6.8783 per dollar.
(Reporting by Rae Wee; Editing by Shri Navaratnam)
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