U.S. dollar banknotes are seen in Chicago on October 18, 2022.
Jakub Porzycki | Nurphoto | Getty Images
The U.S. dollar held gains on Thursday after strong U.S. banking results firmed up expectations that the Federal Reserve will keep monetary policy tight for a while longer, and New Zealand’s dollar slumped after cooler than expected inflation data.
The dollar index, which tracks the currency against a basket of its peers, was little changed at 101.96 after climbing 0.27% on Wednesday. The kiwi slid 0.6% to $0.6162 after touching the weakest level since March 16.
The Japanese yen weakened a second day, losing 0.1% to at 134.85, after yesterday trading above 135 for the first time in a month.
Morgan Stanley reported first quarter profit on Wednesday that beat expectations, adding to rosy results from major U.S. lenders that have calmed fears of a widening crisis after the failure of Silicon Valley Bank and Signature Bank last month.
“The banking results continue to show that the U.S. bank funding situation is stabilizing,” said Bank of Singapore currency strategist Sim Moh Siong. “So that’s helping the dollar, plus the fact that we have slightly hawkish Fed speak, the market is starting price out the extent of a Fed cut for this year.”
“You have the UK CPI that turned out hotter than expected, at the same time the New Zealand CPI which turned out lower than expected, which are driving the sterling and kiwi,” he added.
The U.S. central bank will deliver a final 25-basis-point interest rate increase in May and then hold rates steady for the rest of 2023, according to economists in a Reuters poll.
Fed Bank of New York President John Williams said on Wednesday that inflation is still at problematic levels and the U.S. central bank will act to lower it.
New Zealand’s consumer price index for the first quarter came in below expectations on Thursday, but remained near historic highs. That followed hotter than expected CPI figures in Britain that boosted bets for a rate hike from the Bank of England in May.
Sterling traded 0.17% lower at $1.243, retracing gains on Wednesday.
Traders are anticipating further cues from U.S. manufacturing data on Friday, the Bank of Japan’s meeting next week, and the Fed’s Open Market Committee early next month, Bank of Singapore’s Sim said.
