By Gertrude Chavez-Dreyfuss
NEW YORK (Reuters) -The dollar rose on Thursday as a mixed set of U.S. data did little to change views that the economy is still on solid footing, suggesting the Federal Reserve is reconsidering the timing of its first interest rate cut since 2020 will probably postpone until later this year.
Comments from New York Fed President John Williams, who said there is no urgent need to cut rates at this time given the strength of the economy, also helped the dollar rise. The president of the New York Fed is always a voter on the central bank’s policy-setting committee.
However, a warning from the financial leaders of the United States, Japan and Korea about the sharp fall in the yen and the won weighed on the dollar overnight and gave the yen a rare reprieve. But the impact has since disappeared.
The yen was up modestly on Wednesday after Japan’s top currency diplomat Masato Kanda said G7 financial leaders reaffirmed their position that excessive currency volatility was undesirable.
But strong U.S. economic data and persistent inflation have prompted investors to dramatically reconsider the chances of an early Fed rate cut. That power was expressed again on Thursday.
Manufacturing activity in the US Mid-Atlantic region grew by the most in two years in April, driven by new orders and shipments of finished products.
The Philadelphia Fed’s monthly business climate index rose to 15.5 from 3.2 in March, beating the average estimate of 2.3 among economists and exceeding even the most optimistic forecast of the 34 economists surveyed.
“It’s really hard to fight the dollar’s strength right now. U.S. data continues to suggest the Fed won’t be cutting spending anytime soon,” said Vassili Serebriakov, a currency strategist at UBS in New York.
“We’re starting to see more policy differences between the US and the rest of the G10 being priced out. If you look at the 10-year real interest rate differentials between the US and Europe, they have widened in favor of the dollar.”
Other economic reports were neutral to weak on Thursday. Initial U.S. jobless claims were unchanged at a seasonally adjusted 212,000 for the week ended April 13, data showed, still higher than the forecast of 215,000.
In the housing sector, US existing home sales fell in March as higher interest rates and home prices sidelined buyers. Home sales fell 4.3% last month to a seasonally adjusted annual rate of 4.19 million units.
In afternoon trading, the , which measures the U.S. currency against six of its peers, rose 0.2% to 106.15, still within range of this week’s 5-1/2 month high of 106. 51 on Tuesday. The index is up 4.5% so far this year.
Japan’s currency fell against the dollar, sending the greenback up 0.1% to 154.580 yen, not far from the yen’s 34-year low of 154.79 on Tuesday.
Market participants have raised the bar on possible interventions by Japanese authorities to support the yen and are now pointing to the 155 level even as they think Japan could intervene at any time.
Bank of Japan Governor Kazuo Ueda said Thursday that the central bank could raise interest rates again if the yen’s decline significantly boosts domestic inflation.
In other currencies, the euro fell 0.3% against the dollar to $1.0643. Sterling fell 0.1% to $1.2440.
U.S. interest rate futures on Thursday priced in an easing of about 38 basis points through 2024, or a half cut of 25 basis points each. That is a sharp decline compared to the relaxation of six quarter points at the beginning of the year. Traders see September as the most likely starting point for the rate cut, compared to June just a few weeks ago, based on the CME FedWatch Tool.
“We’ll get the US GDP (gross domestic product) figure next week, but people are now looking beyond that. The next big figure is the jobs data on May 3, which will likely show a solid number, say above 250,000. ” says Marc Chandler, chief market strategist at Bannockburn Forex in New York.
“The market is also making that adjustment in terms of Fed policy. The Fed Funds futures are showing about a 1-1/2 cut, which tells me there is room to bring that down to as little as one cut.”
In cryptocurrencies, bitcoin rose 4.4% to $63,508 ahead of the widely expected halving in the coming days. Halving refers to a technical adjustment built into the digital currency’s code that reduces the rate at which new coins are created.
