Dollar rangebound, an array of PMI data awaited

By Thomson Reuters Feb 21, 2024 | 7:47 PM

By Rae Wee

SINGAPORE (Reuters) – The dollar held broadly steady on Thursday as traders awaited a slew of business activity surveys to gauge the health of major economies and what that may mean for the global interest rate outlook.

Flash Purchasing Managers’ Index (PMI) figures across the U.S., the UK and the euro zone are due later in the day and will provide further clarity on their respective manufacturing and service sectors.

In early Asian trade, the euro gained 0.11% to $1.0831, while sterling was flat at $1.2638.

The dollar edged higher against the yen and was back above the 150 level to last trade at 150.34 yen.

“A glance at the composite PMIs for the U.S., Europe and the UK show that they’re either expanding at a faster pace or slowing at a diminishing rate,” said Matt Simpson, senior market analyst at City Index.

“That warns of upside pressure for growth and inflation – which ties back into the ‘higher-for-longer’ narrative that traders don’t want to hear.”

Policymakers, particularly from the Federal Reserve and the European Central Bank, have been steadfastly pushing back against market expectations for a slew of global rate cuts this year, citing lingering inflationary pressures and the risk of easing rates prematurely.

Minutes of the Fed’s latest policy meeting released on Wednesday reinforced the message that the central bank is in no hurry to deliver on rate cuts that officials still expect to begin sometime this year.

“There wasn’t too much there, they reiterated what we knew from the FOMC meeting,” said Tony Sycamore, a market analyst at IG.

“I don’t think the market’s quite as convinced about where we’re going to start to see the Fed cut rates. We know that the core PCE (personal consumption expenditures) next week will be stronger, so that pushes back expectations again of rate cuts in the U.S..”

Traders are currently pricing in just about a 30% chance that the Fed could begin easing rates in May, much lower than an over 80% chance a month ago, according to the CME FedWatch Tool.

The adjustment in rate expectations has come of the back of recent data which showed U.S. producer prices and consumer prices rising more than expected in January, alongside persistent strength in the country’s labour market.

Elsewhere, the Australian dollar rose 0.07% to $0.65565, while the New Zealand dollar hit a one-month high of $0.6198.

The Reserve Bank of New Zealand (RBNZ) meets next week, and while economists generally expect the bank to hold the cash rate at 5.5%, some see a risk of a hike.

The dollar index fell 0.06% to 103.92.

(Reporting by Rae Wee; Editing by Edwina Gibbs)