Dollar set for weekly gain as rate cut bets ebb
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The dollar headed for its largest weekly rise in a month and a half on Friday, helped by surprisingly strong U.S. economic indicators and a hawkish tone in Federal Reserve minutes.
The Australian dollar is down 1.3% to $0.6605 through the week so far and the New Zealand dollar is about 0.6% weaker at $0.6098. The euro traded at $1.0814 in the Asia morning, down 0.5% for the week.
Overnight May figures showed U.S. business activity accelerated to the highest level in just over two years and manufacturers reported a surge in prices for a range of inputs, prompting a pullback in U.S. interest rate cut expectations.
"Traders pushed out the timing of the first Fed rate cut to December," said Westpac economist Jameson Coombs.
Minutes from the Federal Reserve's April 30-May 1 meeting published this week also showed a live debate among policymakers as to whether current rates are sufficiently restrictive to cool inflation, again surprising investors expecting rate cuts.
The dollar's gains have kept heavy pressure on the yen, which has weakened about 0.8% through the week so far to 157.10 per dollar. The yen has also fallen on crosses and at 169.65 to the euro is not far from last months' 22-year trough at 171.44.
Japan's core inflation slowed for a second straight month in April, meeting market expectations at 2.2%.
The euro received a small boost on Thursday when key European wage indicator picked up, showing the pace of negotiated wages rose by 4.7% last quarter. That ruffled market bets on a June rate cut for Europe and helped lift the euro away from a nine-month low on the pound.
However the moves were modest and the European Central Bank published a blog post highlighting one-off factors contributing to the wage rise. Rates markets still price a near 90% chance the ECB cuts rates next month.
Currency moves were modest in the early part of the Asia session and stock markets fell. China started a second day of war games around Taiwan. China's yuan was steady in offshore trade and eyeing a weekly drop at 7.2858 per dollar.
The U.S. dollar index, which measures the dollar against a basket of six major peers, was last up nearly 0.6% on the week to 105.07, on course for its largest one-week rise since mid-April.
Later in the day traders will have an eye on final German GDP figures, British and Canadian retail sales, U.S. durable goods orders and speeches from ECB and Federal Reserve policymakers - notably Fed Governor Christopher Waller on longer-term rates.
