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Dollar Rises, ECB with Doubtful Decision

The dollar rose in Asia on Monday, but it could be a short-term gain as this week the U.S. inflation figures will be released. The dollar has already received a boost from the strong jobs data last week, which provides further arguments for a Fed rate hike. In addition, market participants still have no clear idea how to assess the ECB’s decision on its monetary policy.

  • The US dollar index against other major currencies rose 0.07% to 95.545. The dollar rose on strong US jobs report.
  • The yen rose 0.07% to 115.28 yen per dollar.
  • The Australian dollar rose 0.04% to 0.7078, with Australian retail sales hitting a new high in 4Q21 rising 8.2%.
  • The New Zealand dollar was down 0.05% to 0.6616.
  • The yuan fell 0.44% to 6.3328. Data released this morning show that the Caixin Purchasing Managers’ Index for the service sector fell to 51.4 in January.
  • The pound fell 0.02% to 1.3527 pounds per dollar.
  • The euro was trading at $1.1451, not far from its high of $1.4183 the previous week.
  • The baht remained stable in the range of 32.945 baht per US dollar on Monday morning.

Investors are focusing on U.S. inflation and the consumer price index, which will be published on Thursday. If the CPI continues to rise, bets on a Fed rate hike in March 2022 will increase. The good labor market figures from last Friday should support this. Non-farm payrolls increased by 467,000 in January. The only thing that probably makes the Fed hesitate is the unemployment rate, which had risen to 4%.

Various financial institutions believe that the Fed could start raising interest rates in March with a probability of one-third. There is a chance that interest rates will reach 1.5% by the end of 2022.

In addition, two-year U.S. Treasury bond yields rose, reaching a two-year high of 1.32% on Monday, while the 10-year yield was 1.9049%.

The ECB’s monetary policy decision last week continued to cause questionable faces with its decision to leave interest rates at 0.00%. After the announcement, the major stock indices in Europe such as the DAX took a jump down by 3.3%. Especially after the CPI in the euro area increased by 5.1%, the highest increase since the data was recorded.

Throughout the week, investors await statements from the Federal Reserve Bank, the European Central Bank, the Bank of England, the Reserve Bank of Australia (RBA) and the Bank of Canada.

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