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

The dollar rose Monday on news that the U.S. manufacturing sector grew in March for the first time since September 2022, while the yen hovered below 152 per dollar on the threat of intervention by the Bank of Japan.

The Institute for Supply Management (ISM) said U.S. manufacturing output rebounded and new orders increased, although factory employment remained subdued and input prices rose.

The rebound reversed 16 straight months of contraction in the manufacturing sector, which accounts for 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 0.507% higher at 105.01.

“The ISM information is really leading and shows that … inflation is not always coming down, and I think the market is responding quite well to that,” said Eugene Epstein, head of structuring for North America at Moneycorp.

Markets on Monday cut their bets on a Federal Reserve rate cut in June after raising odds on Friday’s news of falling US 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 an estimated 0.4% increase by economists in a Reuters survey.

“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 on Friday that the latest US inflation figures were “in line with what we would like to see”, reaffirming his comments after the Fed’s policy meeting last month.

The currency market has turned the spotlight on the yen as its move towards 1990 levels revives risks that Japanese authorities will intervene.

The yen hit a 34-year low against the dollar at 151.975 on Wednesday and was last at 151.635 per dollar on Monday.

The BOJ intervened in September and October of 2022 when the yen slid to a 32-year low of 152 per dollar.

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

But news of last week’s emergency meeting of Japan’s three monetary authorities – the Ministry of Finance (MOF), the BOJ and the Financial Services Agency – and commentary 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 movements in the currency 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 7.2604 per dollar.

In other currencies, the euro was 0.48% lower at $1.0738, while the British pound was last at $1.25440, down 0.63% on the day.

In cryptocurrencies, bitcoin was last down 1.07% at $68,906. Ether was down 1.61% at $3,441.90.