The dollar is rising against most global currencies in anticipation of March US inflation

The US dollar rose against the euro, the British pound and most global currencies on Tuesday and fell slightly against the Japanese yen.

Traders’ attention this week is on first-quarter US GDP data, as well as the March US earnings report, which includes a key inflation gauge (PCE index) favored by the Federal Reserve (the Fed of the United States).

Preliminary data showed that the US Consumer Price Index rose 3.5% in March on an annual basis. This is more than expected by the experts. If the PCE data also shows that US inflation is accelerating persistently, that will likely keep the Federal Reserve from cutting interest rates anytime soon.

The common European currency is trading near its lowest since early November last year after statements by the head of the central bank of France and a member of the European Central Bank (ECB) governing board Francois Villerois de Gallo. The risk of oil prices rising due to heightened tensions in the Middle East will not prevent the ECB from starting to ease monetary policy in June, Villeroy de Gallo said yesterday.

Even if the conflict in the Middle East leads to a spike in oil prices, the European Central Bank will take time to analyze whether this will lead to stronger core inflation and inflation expectations, he said.

Asked if the ECB could delay the start of policy easing because of uncertainty, Villeroy de Gallo said that would not happen “unless there are surprises”. “We shouldn’t wait too long,” he emphasized.

The DXY index, calculated by ICE, which shows the dollar’s performance against the six major currencies (euro, Swiss franc, Japanese yen, Canadian dollar, British pound and Swedish krona), added 0.06% as strong US economic data and hawkish comments on Federal Reserve officials reinforced expectations that the central bank will slow down interest rate cuts, with some analysts saying the Fed may not cut rates this year. Markets now expect the central bank to keep interest rates steady until September and not see more than one rate cut this year. The broader WSJ Dollar Index rose 0.02%*.

The euro was down 0.08% against the dollar and was trading at $1.0647, up from $1.0655 at the close of previous trade. The ECB set a reference rate for the euro at $1.0632 yesterday afternoon.

The pound to dollar exchange rate was down 0.09% at $1.2339 from $1.2350 the previous day.

The US currency’s value against the Japanese yen fell 0.06% to 154.76 yen from 154.85 yen a day earlier. If the dollar breaks the psychologically important level of 155 yen, the Japanese authorities, as markets fear, may intervene, Trading Economics reported, citing Japan’s Finance Minister Shunichi Suzuki.

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Investors are now focusing on the Bank of Japan (BoJ) meeting this week, which is expected to keep the key interest rate on hold. Meanwhile, BOJ Governor Kazuo Ueda said at last week’s G20 summit that the central bank may raise interest rates again if the yen’s weakness leads to sustained increases in consumer prices through higher import costs.

He added that the Bank of Japan will show in its quarterly growth and price forecasts at the upcoming policy meeting how the yen’s depreciation has affected the economy.

With a strong dollar, commodity currencies tend to fall. The Australian and New Zealand dollars were down 0.08% to US$0.6446 per Aussie and 0.25% to US$0.5906 per Kiwi, respectively.

Especially the Australian dollar, which fell more weakly compared to its New Zealand counterpart, was influenced by the Index of business activity in Australia, which increased to 53.6 points in April 2024 from 53.3 in the previous month. And while growth in business activity was driven mainly by the services sector, the pace of decline in industry slowed for the first time in eight months.

The other two commodity currencies heavily dependent on oil prices, the Canadian dollar and the Norwegian krone, fell 0.02% to 1.3701 Canadian dollars per US dollar and 0.06% to 10.9895 kroner per US dollar, respectively.

Oil futures rose on Tuesday, reversing losses from the previous session, as investors continued to assess geopolitical risks in the Middle East.

Oil prices fell on Monday as the recent escalation in tensions between Iran and Israel did not lead to a wider conflict in the region that could affect oil supplies.

Today, US light crude (WTI) for May 21 delivery rose 0.22% to $82.08 a barrel, while European-traded Brent futures for April 30 delivery rose 0.24% to $87.21 a barrel*.

*Exchange rates are current as of 10:15 a.m. Bulgarian time, sources Reuters and TradingEconomics.