By Chuck Mikolajczak
NEW YORK (Reuters) -The dollar advanced after falling in the previous session, while the euro fell lower on Monday, as market moves were dictated by recent meetings of global central banks that set expectations for varying interest rate cuts next year.
The , which measures the US currency against six of its major peers, resumed its upward trajectory after suffering its biggest one-day drop in almost a month on Friday following softer-than-expected inflation, but still above 2% from the Federal Reserve. target rate. The dollar is now on track for its fourth gain in five sessions.
The Fed last week forecast a more moderate pace of rate cuts than markets had expected, sending both the dollar and U.S. Treasuries up sharply.
“The key for the dollar right now is the difference in policy, and Powell is moving from being more concerned about unemployment than inflation and then back to the labor market okay, but we’re more concerned about inflation. This stance confuses the market.” ” says Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.
“For the dollar to turn, I want the market to move past the Fed to the dovish side again. We need some weak economic data and the employment data would be a step in that direction.”
The dollar index rose 0.37% to 108.19, remaining near a two-year high, while the euro fell 0.34% to $1.0394.
Also supporting investor sentiment was the passage of spending legislation by the US Congress on Saturday, bypassing a government shutdown.
Economic data from the Commerce Department shows that new orders for key US-made capital goods rose sharply in November, partly due to strong demand for machinery, another sign that the economy remains on solid ground heading into the new year.
However, the Conference Board said its consumer confidence index fell to 104.7 this month, from an upwardly revised 112.8 in November, as enthusiasm over the US election faded and concerns emerged about future business conditions.
Traders are pricing in a 33 basis point rate cut next year, less than the two 25 basis point rate cuts the Fed forecast last week. According to CME’s FedWatch Tool, the market is pricing in no more than a 50% chance of a Fed rate cut until the May meeting.
European Central Bank President Christine Lagarde said the eurozone is very close to reaching the ECB’s medium-term inflation target, according to an interview published in the Financial Times on Monday.
Earlier in December, Lagarde said the central bank would cut interest rates further if inflation fell further towards the 2% target, because curbing growth was no longer necessary.
Trading volumes were likely to be muted during a holiday-shortened trading week as the year draws to a close.
Against the Japanese yen, the dollar rose 0.46% to 157.13. The dollar’s rise, combined with the Bank of Japan keeping interest rates steady and Governor Kazuo Ueda’s comments reducing the likelihood of a Japanese rate hike next month, has pushed the yen back toward weak levels that recently prompted the Japanese authorities to intervene.
Sterling weakened 0.37% to $1.2523. The Bank of England kept interest rates unchanged on Thursday, although some sentiment was stronger than expected.
