Dollar higher after production data lowers interest rate expectations for June – 01-04-2024

The dollar rose on Monday after data showed the US manufacturing sector expanded in March for the first time since September 2022, while the yen hovered below 152 per dollar, keeping traders nervous about the threat of intervention.

The Institute for Supply Management (ISM) said the U.S. manufacturing sector grew for the first time in 1-1/2 years in March as production picked up and new orders increased, although factory employment remained subdued and prices for inputs increased.

The rebound reversed 16 straight months of contraction in the manufacturing sector, which makes up 10.4% of the economy. That was the longest period of contraction since August 2000 to January 2002.

The dollar index, which measures the US currency against six rivals, was 0.469% higher at 104.97.

Markets on Monday cut their bets on a Federal Reserve rate cut in June, after earlier increasing odds when a readout on Friday showed a drop in U.S. prices, the CME FedWatch tool showed.

The personal consumption expenditures (PCE) price index rose 0.3% in February, the Commerce Department’s Bureau of Economic Analysis said on Friday, compared with the 0.4% increase that economists polled by Reuters had forecast.

“Combined with Friday’s PCE data, I don’t think this will materially change the calculus for the Federal Reserve anymore, but markets are starting to get a little more in line with the Fed’s own expectations of how often and when they are going to cut this year,” said Helen Given, FX trader at Monex USA.

Fed Chairman Jerome Powell said Friday that the latest U.S. inflation data was “in line with what we would like to see,” in comments that echoed his comments after the Fed’s policy meeting last month.

“The Fed’s willingness to tolerate inflation well above 2% while still considering rate cuts supports risky assets,” said Mansoor Mohi-uddin, chief economist at the Bank of Singapore.

The currency market has turned the spotlight on the yen as it moves towards levels last seen in 1990, reviving the risk that Japanese authorities will intervene.

The yen hit a 34-year low against the dollar of 151.975 on Wednesday and was last at 151.745 per dollar on Monday.

Japan intervened in the currency market in 2022, first in September and again in October, as the yen slid to a 32-year low of 152 per dollar.

Japan’s plans for the yen remain difficult to predict. Japan’s fiscal year is over, which means the Bank of Japan doesn’t have to worry about sudden yen movements impacting balance sheets.

But news of last week’s emergency meeting of the three monetary authorities – the Ministry of Finance (MOF), the BOJ and the Financial Services Agency – and comments from officials have kept the yen above a 34-year low so far.

Finance Minister Shunichi Suzuki said on Monday he would not rule out options against excessive price movements and would respond appropriately, repeating his warning of rapid moves in the yen.

China’s yuan weakened on Monday, under pressure from the dollar, even as the latest Chinese data showed the economy’s recovery has gained momentum and continued central bank efforts have stabilized the currency.

The offshore yuan last traded at 7.2592 per dollar.

In other currencies, the euro was 0.44% lower at $1.0742, while the British pound was last at $1.25660, down 0.45% on the day.

In cryptocurrencies, bitcoin was last down 0.79% at $69,097. Ether was 0.59% higher at $3,518.90.