In the currency markets, the value of the dollar against a basket of currencies rose last week, following a decline the week before, as data on rising inflation in the U.S. reduced the prospects that the U.S. central bank would cut interest rates in June.
The dollar index, which shows the value of the U.S. dollar against six major world currencies, rose by 0.7 percent last week, to 103.45 points.
At the same time, the value of the dollar against the euro increased by 0.5 percent, causing the price of the euro to slide to 1.0890 dollars. The dollar also strengthened against the Japanese currency, by 1.3 percent, reaching an exchange rate of 149.00 yen.
After sharply falling the week before, the dollar index recovered some of its losses last week. The strengthening of the dollar followed two reports showing that inflation in the U.S. rose in February.
Consumer prices rose by 0.4 percent on a monthly basis and 3.2 percent on an annual basis, while producer prices increased by 0.6 percent on a monthly basis. After these data, it is clear that the Fed will not rush to cut interest rates.
– It is very likely that the Fed will be very cautious in the short term regarding inflationary prospects – write analysts at MUFG in their market commentary. Next week, the focus for investors will be the Fed meeting.
The central bank is expected to keep interest rates unchanged, and as inflation has remained elevated over the past two months, the chances of the Fed cutting rates in June are diminishing.
In the money market, it was estimated at the beginning of last week that there was a 67 percent chance that the Fed would cut rates in June, but that probability has now fallen to 60 percent.
