The US dollar weakened to close out the trading week, although the greenback recorded a tepid weekly gain. The buck showed renewed signs of life in recent weeks on shifting expectations that the Federal Reserve will raise interest rates higher than many had initially anticipated due to hotter-than-expected inflation.
This week, the Bureau of Labor Statistics (BLS) will publish the consumer price index (CPI) report for February. The market is penciling in an annual rate of 6%, but the Cleveland Fed Bank’s Nowcast suggests the CPI would ease to just 6.2%.
Whatever the case may be, many pockets of the US economy are showing stubborn and sticky inflation. The Fed keeps alluding to the sky-high core PCE excluding housing as one of the reasons why the central bank needs to keep going on its tightening campaign.
But market experts say there are two reasons why investors should still anticipate a quarter-point rate hike at this month’s Federal Open Market Committee (FOMC) policy meeting.
The first reason is that monetary policymakers still want to see how their rate hikes are traveling through the financial system and start proceeding with incremental rate hikes.
The second reason is that the collapse of two major banks in less than a week — Silvergate and Silicon Valley Bank — could be signs that trouble is brewing in the financial sector due to tighter credit conditions and rising interest rates.
This could turn out to be one of the most important FOMC meetings in months.
Meanwhile, several other crucial data points were released: retail sales, producer price index (PPI), and the University of Michigan’s Consumer Sentiment Index (CSI) for March.
The US Treasury market tanked on Friday, with the benchmark ten-year yield down 22 basis points to 3.704%. The spread between the two- and ten-year yields returned below -100 basis points.
The US Dollar Index (DXY), which measures the greenback against a basket of currencies, plunged 0.64% to 104.64, from an opening of 105.13. But the DXY presented a tepid weekly gain of 0.11%, lifting its year-to-date rally to nearly 1.1%.
The USD/CAD currency pair rose 0.22% to 1.3860, from an opening of 1.3830, on Friday. The EUR/USD advanced 0.54% to 1.0642, from an opening of 1.0676.