New York: The US dollar greenback is strengthening again after a bumpy 2023, as Wall Street accepts that interest rate cuts are coming later than previously expected, a media report said.
The US Dollar Index, which tracks the dollar against the British pound, euro, Swiss franc, Japanese yen, Canadian dollar and Swedish krona, is up 2.8 per cent for the year as of Friday, CNN reported.
The US currency slid last November and ended the year lower against that basket of currencies as investors grew optimistic that the Federal Reserve would soon cut interest rates. But Fed Chair Jerome Powell said in January that interest rate cuts are unlikely to begin in March, as investors widely believed would happen.
Piping hot economic data in recent weeks has supported the notion that the Fed will keep rates higher for longer. The Consumer Price Index rose 3.4% annually in December, still above the central bank’s 2 per cent target.
A stronger dollar is bad news for American companies that generate most of their revenue overseas, since it means fewer dollars for their bottom lines when other currencies, such as the euro, are converted into US dollars. But it also means that US companies and consumers could spend less for imported goods, and Americans’ purchasing power increases when traveling abroad, CNN reported.
Other countries’ monetary policy decisions also affect the greenback’s trajectory. The European Central Bank in January kept rates unchanged. But if ECB President Christine Lagarde so much as hints at a rate cut coming this summer, that could continue driving the dollar higher, said Quincy Krosby, chief global strategist at LPL Financial.
Higher interest rates tend to garner more international capital to flow into a country, raising demand for the currency and thus its value.
The 10-year US Treasury yield has jumped back above 4% this year as investors recalibrate their rate expectations, providing another boost to the US currency, CNN reported.
–IANS