The dollar rose for a fourth consecutive session against a basket of major peers on Thursday, reaching a two-month high as US data pointed to a resilient economy even after an aggressive rate hike cycle from the Federal Reserve.
Weekly initial jobless claims rose 4,000 to 229,000 last week, below the Reuters estimate of 225,000, while the previous week’s data was heavily revised downwards, an indication that employment shows little sign of a crack.
The second estimate of Q1 gross domestic product growth confirmed that the economy was growing at a slower pace, but the increase was revised upwards from an initial 1.1% to 1.3%.
“The recession everyone was talking about in 2023 is certainly not imminent, so with those bets being paid off, rates are creeping up right now,” said Erik Bregar, Director of FX & Precious Metals Risk Management at Toronto-based Silver Gold Bull.
“It’s not permanently baked into the pie, but if we can creep to a 60% or 70% chance of a raise, we’ll probably go again in June.”
“The momentum is definitely on the dollar side,” he added. “I don’t want to curse it, but it’s not something I would want to stand for right now. There’s a lot of momentum behind it.”
By contrast, the German economy, the largest in Europe, slipped into recession in the first quarter as GDP fell by 0.3%, pushing the euro lower. The dollar peaked in two months, receiving additional support from safe-haven demand as concerns over a US default mounted.
The dollar index rose 0.433% at 104.280 after hitting 104.31, its highest level since March 17. The four-day run of increases would be the longest since late February.
The euro fell 0.31% to $1.0715.
The probability of a 25 basis point rate hike by the Fed at its June meeting is about 53%, up from about 36% on Wednesday, according to CME’s Fedwatch Tool.
Recent comments from Fed officials indicate that members are divided on whether or not to continue raising rates. Susan Collins, chairman of the Boston Federal Reserve, said on Thursday it may be time for the U.S. central bank to pause its rate hike cycle, while Richmond Fed chairman Tom Barkin said the Fed is in a “test and learn” situation. in terms of curbing inflation.
Concerns about a possible US default have supported the dollar recently as talks continue in Washington to raise the $31.4 trillion debt ceiling. The Treasury Department has warned that it will not be able to pay all its bills by June 1 if the ceiling is not raised.
After days of negotiations, US President Joe Biden and Republican chief executive Kevin McCarthy appeared to be close to an agreement to cut spending and raise the cap, with the two sides about $70 billion apart.
Fitch put the United States’ “AAA” debt ratings at negative, heralding a potential downgrade if lawmakers fail to reach a deal. In addition, credit rating agency DBRS Morningstar put the US on Thursday for a downgrade.
The Japanese yen weakened 0.52% against the greenback to 140.16 per dollar, while the British pound last traded at $1.2311, down 0.43% on the day.
