US dollar rises on strong data and Fed comments on rate cuts By Reuters

By Gertrude Chávez-Dreyfuss

NEW YORK (Reuters) -The dollar rose on Thursday as a mixed set of U.S. data did little to shake views that the economy is still on solid ground, suggesting the Federal Reserve will likely delay the timing of its first cut interest rates from 2020 for later this year.

Comments from New York Federal Reserve President John Williams saying there is no urgent need to cut interest rates at this time given the strength of the economy also helped boost the dollar. The president of the New York Federal Reserve is always a voter on the committee that sets the central bank's policies.

However, a warning from the finance chiefs of the United States, Japan and Korea about a sharp decline in the yen and won weighed on the dollar overnight and gave the yen a rare respite. But the impact has since dissipated.

The yen had risen modestly on Wednesday after Japan's top monetary diplomat, Masato Kanda, said G7 financial leaders reaffirmed their stance that excessive currency volatility was undesirable.

But strong U.S. economic data and persistent inflation have led investors to dramatically rethink the chances of the Federal Reserve cutting rates any time soon. On Thursday, that strength was on display once again.

Manufacturing activity in the U.S. Mid-Atlantic region grew in April at its fastest pace in two years on strength in new orders and shipments of finished goods.

The Philadelphia Fed's monthly business conditions index rose to 15.5 from 3.2 in March, beating the median estimate among economists of a reading of 2.3 and beating even the most optimistic forecast among 34 economists surveyed.

“It's really difficult to fight the strength of the dollar right now. US data continues to suggest that the Federal Reserve is not going to cut rates anytime soon,” said Vassili Serebriakov, currency strategist at UBS in New York.

“We are starting to see greater policy divergence between the United States and the rest of the G10. When you look at the 10-year real rate differentials between the United States and Europe, they have widened in favor of the dollar.”

Other economic reports on Thursday were neutral to weak. U.S. initial jobless claims were unchanged at a seasonally adjusted 212,000 for the week ending April 13, the data showed, even higher than the forecast of 215,000.

In the real estate sector, sales of existing homes in the United States fell in March as higher interest rates and home prices sidelined buyers. Home sales fell 4.3% last month to a seasonally adjusted annual rate of 4.19 million units.

In afternoon trading, the dollar, which measures the U.S. currency against six of its peers, rose 0.2% to 106.15, still within range of this week's five-and-a-half-month high of 106. 51 reached on Tuesday. The index is up 4.5% so far this year.

The Japanese currency fell against the dollar, sending the dollar up 0.1% to 154.580 yen, not far from the yen's 34-year low of 154.79 hit on Tuesday.

Market participants have raised the bar on possible intervention by Japanese authorities to support the yen, now targeting the 155 level, although they believe Japan could intervene at any time.

Bank of Japan Governor Kazuo Ueda said Thursday that the central bank could raise interest rates again if declines in the yen significantly raise domestic inflation.

In other currencies, the euro fell 0.3% against the dollar to $1.0643. The pound fell 0.1% to $1.2440.

US interest rate futures on Thursday have priced in around 38 basis points of easing in 2024, or a cut and a half of 25 basis points each. This is a sharp reduction compared to the flexibility of six quarters of a point at the beginning of the year. Traders see September as the most likely starting point for the cut, compared to June just a couple of weeks ago, according to the CME FedWatch tool.

“We'll have the US GDP (gross domestic product) number next week, but now people are looking beyond that. The next big number is the May 3 employment data, which will likely show a solid number, let's say above 250,000,” said Marc Chandler, chief market strategist at Bannockburn Forex in New York.

“The market is also making that adjustment in terms of Fed policy. Fed funds futures are showing about 1-1/2 cuts, which tells me there's room to get to just one cut.”

In cryptocurrencies, bitcoin rose 4.4% to $63,508 ahead of the highly anticipated halving event in the coming days. Halving refers to a technical adjustment built into the digital currency code that reduces the speed at which new coins are created.