Dollar Soars After Good Economic Indicators to Five-Month High

Dollar jumped to almost five-month high after upbeat economic data. U.S. manufacturing expanded in March for the first time in seven months-that is, since September 2022-on the back of solid improvement in new orders while inventories contracted. News that apparently cheered investors and forced them to take back their bets on the likelihood of a rate cut by Federal Reserve in June.

According to the Institute for Supply Management, U.S. manufacturing expanded in March for the first time after 16 consecutive months of contraction, a growth supported by increased production and new orders, with the employment level still subdued, while input prices rose.

The dollar index, which measures the dollar's performance against six major currencies, was 0.4% higher at 104.97. The upside bias was perpetuated by Friday's data showing the PCE price index, considered more in line with the targets of the Federal Reserve, rose slightly.

Federal Reserve Chair Jerome Powell was content with the latest inflation data-a signal that the central bank is comfortable with the present level of inflation. Mansoor Mohi-uddin, chief economist at the Bank of Singapore, also believes that so long as the Fed "is happy to tolerate" inflation above 2% and seriously thinks about rate cuts, it would be supportive for risk assets.

Meanwhile, attention shifted to the Japanese yen, with renewed fears of intervention from Japanese authorities offsetting an advance that has taken it near levels not seen since 1990. Finance Minister Shunichi Suzuki emphasized that "the government is ready to act against excessive currency moves," which analysts took as a signal for intervention to steady the yen.

In contrast, the euro and sterling were under downward pressure against the dollar. The single currency fell to its lowest level since mid-February, while sterling traded just shy of its December lows.

Looking ahead, market participants will turn to U.S. labor market job openings data for more hints about the economy's health. On the rebound of the dollar, a turnaround would be more likely inspired by the data, reflecting that the trend of future economic indicators would continue to be what most determines the situation in the currency markets.