NEW YORK/LONDON – The U.S. dollar climbed to a six-week peak against basket of currencies on Thursday, after data showed producer prices for January came in higher than expected and jobless claims fell, suggesting the Federal Reserve will have to keep monetary policy tight for some time to bring down inflation.
The U.S. currency also hit a new six-week high against the yen, euro, and Australian dollar in the wake of economic reports.
The U.S. producer price index bounced to 0.7%, higher than both the consensus forecast of 0.4% and the December number, which showed a drop of 0.2%.
U.S. jobless claims data also showed a resilient labor market, with claims of 194,000, compared with expectations of 200,000, according to a Reuters poll.
“We had a trickle of data particularly on the inflation front. The data runs have been positive. Yields are creeping up,” said Shaun Osborne, chief FX strategist, at Scotiabank in Toronto.
“So we’re seeing a bit of a reprieve in the recent softness in the dollar. The dollar is looking prone for a rebound anyway. A lot of the good news has already been priced into the euro the past few weeks,” he added.
In late morning trading, the dollar index was up 0.2% at 104.02, after earlier hitting a six-week high of 104.24. Against the yen, the U.S. dollar also hit a six-week peak, but was last little changed on the day at 134.19. Yen traders are waiting for a speech by Kazuo Ueda, the nominee to become the Bank of Japan’s next governor, at a confirmation hearing at the lower house of parliament on Feb. 24.
The interest rate futures market shows U.S. rates could peak close to 5.25% by July before dropping to 5.0% by the end of the year.
Thursday’s data followed strong economic numbers on Tuesday and Wednesday.
Data from the U.S. Commerce Department showed on Wednesday that U.S. retail sales rebounded sharply in January after two-straight monthly declines
That came just a day after U.S. inflation figures showed consumer prices slowing, but still sticky. Data from earlier this month also showed that U.S. job growth accelerated sharply in January, pointing to a resilient economy.
However, the question for market watchers is how well can the economy continue to hold up, especially as rates head much higher than many originally thought.
“The data is coming in strong and it is leading people to price out the ‘Armageddon-recession’ scenario that everyone was expecting at the start of the year, but I’m not sure one CPI and one retail sales print is enough for everyone to think all is fine and dandy with the economy once more,” TraderX strategist Michael Brown said.
The euro slipped 0.2% to $1.0671. Earlier in the session, Europe’s single currency fell to $1.0655, the lowest since Jan. 9. That said, it is still more than 11% above late September’s 20-year low.
Sterling slid 0.3% to $1.2005, after having lost more than 1% on Wednesday.
British inflation slowed more than expected in January and there were signs that price pressures are cooling in parts of the economy, such as services, that the Bank of England (BoE) watches closely.
The BoE has already indicated that it may stop raising rates in March and Wednesday’s inflation data reinforced that view.
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