TOKYO – 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 it against a basket of its peers, was little changed at 101.96 after climbing 0.27 percent on Wednesday. The kiwi slid 0.7 percent to $0.6154 after touching the weakest level since March 16.
The Japanese yen lost 0.1 percent to 134.82, after trading above 135 to the dollar for the first time in a month on Wednesday.
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 to deliver 25-basis-point hike in May, stay on hold rest of year – Reuters poll
Fed Bank of New York President John Williams said on Wednesday that inflation was still at problematic levels and the U.S. central bank would act to lower it.
Fed’s Williams: Inflation still ‘too high,’ Fed will act to lower it
New Zealand’s consumer price index (CPI) 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 increase from the Bank of England in May.
Sterling traded 0.17 percent lower at $1.243, retracing gains on Wednesday.
The Aussie dollar declined 0.17 percent to $0.6703. A review of the Reserve Bank of Australia (RBA) released on Thursday outlined a range of reforms, including a more focused policy mandate.
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 (FOMC) early next month, Bank of Singapore’s Sim said.
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