Dollar jumps on hawkish Fed rate hike repricing amid March jobs, easing bank woes
By Yasin Ebrahim
Investing.com — The dollar rose Monday, underpinned by rising Treasury yields as bets on another Federal Reserve rate hike jumped following recent data showing ongoing strength in the labor market and further easing of stresses in the banking system.
The U.S. dollar index, which measures the greenback against a trade-weighted basket of six major currencies, rose by 0.52% to 102.26.
About 72% of traders expect the Fed to hike rates on May. 3, up from about 55% last week, Investing.com’s Fed Rate Monitor Tool showed, after the U.S. economy created 236,000 jobs in March and unemployment unexpectedly fell to 3.5%.
“On the whole, the employment data shows that inflation pressure remains very sticky,” Jefferies said in a recent note. “There is evidence that slack may be accumulating in some pockets, but not in the aggregate,” it added.
Treasury yields climbed on the hawkish repricing of the Fed rate hikes, with the United States 2-Year Treasury yield holding onto the 4% mark, pushing the dollar higher.
Signs that stresses in the banking sector are easing has also helped support hawkish bets on another rate hike at a time when many are betting that tightening credit conditions will help rein in economic growth and inflation.
“Overall, data on money market fund inflows, Fed lending and bank balance sheets show tentative signs of stabilization relative to a few weeks ago, but certainly do not give the ‘all-clear’ just yet,” Goldman Sachs said in a note.
Despite the strength on Monday, the dollar remains range -bound, technical strategists say, though expect that a move above the 103 level would likely support further gains.
“A move back above 103 on the dollar would be bullish for further rally efforts toward the 106-107 zone for bigger resistance…but the currency remains locked within rather tight boundaries (100-106+) as we enter the new week ahead of earnings season here in the U.S.,” Janney Montgomery Scott said in a note.