Dollar rises as markets focus on Fed rate hike probability

05 Jun 2023

The US Dollar gained against major peers on Monday as markets priced in a 27% chance of the Federal Reserve hiking rates this month following Friday's strong jobs report.

The Dollar index – measuring the currency against six rivals – declined last week after a number of Fed officials said they favoured a pause in rate hikes, and the debt ceiling breakthrough calmed market nerves.

According to analysts, despite May's elevated payroll figure, the Fed could still have room to pause rate hikes as wage pressures eased and unemployment increased from a 53-year low, Reuters reports.

As it stands now, markets say there is a 27% chance of a 25-basis point hike at the 13th-14th June meeting.

At the time of writing, the Dollar index was last up 0.1% at 104.260.

In addition, US services data, due to be published on Monday, may give a further indication, along with core inflation out next week.

"...the lack of other key inputs before next week's CPI [inflation data] could keep the Dollar capped," said a note by currency analysts at ING.

"We think that, when adding the cooling off in wage inflation and considering the diverging views within the FOMC (Federal Open Market Committee), the case for a pause at the 14 June meeting should prevail. 

Elsewhere, the Euro fell 0.1% to $1.06930, prolonging the prior session's 0.5% decline. Markets are focusing now on European Central Bank President Christine Lagarde addressing a European Parliament hearing on Monday.

In Australia, the Dollar fell 0.3% to $0.65870 before a central bank rate decision on Tuesday, the Reuters report adds.

Moreover, the Turkish Lira fell over 1%, continuing its decline since the re-election of President Tayyip Erdogan. The Lira fell despite Mehmet Simsek being appointed as the country's finance minister.