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Dollar steady as Fed’s next rate moves are in question

Carla Mozee

Euro little changed after softer inflation reading

Getty ImagesUS. dollars are being counted at a currency exchange bureau in Baghdad. DMAMBMCMDMEMGZBZDZQZRZSZTZU

The U.S. dollar firmed on Thursday, on course to extend a run of advances to four days, as investors welcomed the latest batch of economic data.

The dollar picked up steam in recent days as Federal Reserve policy makers pointed to a pickup in U.S. inflation on Wednesday, even though they provided little hints about the pace of rate hikes.

What are currencies doing?

The ICE U.S. Dollar Index (IFUS:DX-Y.NYB), which measures the buck against a basket of six currencies, was up marginally at 92.529. The index on Wednesday rose 0.1% and hit its highest level since late December during the session. A gain on Thursday would be the fourth straight advance.

The broader WSJ U.S. Dollar Index (CALCULATED:BUXX) fell 0.3% to 86.12.

The euro (EURUSD) fetched $1.1970, up $1.1950 on Wednesday, and the British pound (GBPUSD) bought $1.3571, donw from $1.3575. Both were little changed after separate reports on eurozone inflation and the U.K. services-sector fell short of expectations.

Read:8 reasons to ditch the euro right now: Bank of America analyst

Japan’s yen (USDJPY)(JPY) gained against the buck, with the greenback buying ¥109.28, down from ¥109.84.

Against its Canadian rival (USDCAD)(CAD) , the U.S. dollar fell to C$1.2867 from C$1.2884 late Wednesday.

Read: Here’s why Turkey’s snap election won’t solve all the lira’s problems

What is driving the market?

The ICE Dollar Index tilted lower after seesawing during Wednesday’s trade following the release of the Federal Reserve’s latest policy statement. Policy makers, led by Chairman Jerome Powell, said readings for both headline and core inflation have moved close to the central bank’s 2% target.

But traders found little clarity in the statement about how that view would change the expected pace of rate hikes from the U.S. central bank this year, setting the dollar adrift. Investors have largely priced in expectations for the Fed to raise interest rates three times this year, including one that was issued in March.

While the Fed foresees inflationary pressures building in the U.S., inflation in the eurozone economy is still struggling to maintain a stronger pace. The annual rate of consumer prices came in at 1.2% on Thursday for April, down from March’s 1.3% rate. But the euro, which has been under pressure lately, was little changed after the report.

The European Central Bank has been working to boost inflation through its stimulus efforts and softer inflation could keep the central bank from starting to wind down its bond-buying program this year.

On Thursday, investors will watch for developments from Beijing, where U.S. and Chinese officials are meeting for discussions on tariffs and other trade issues. Worries about trade hostilities between the top two global economies have roiled financial markets in recent months.

Don’t miss:Here’s why the dollar rally could be more fragile than it looks

Also: ‘Symmetric’ is the new buzzword as Fed adds adjective to description of inflation target

What are strategists saying?

“Overall, the key takeaway was that the Fed is becoming a little more cautious about the economy’s performance, but considerably more optimistic on the inflation outlook. As for the dollar, all eyes will now turn to tomorrow’s employment report, which should provide some direction – particularly if there are any surprises in the wage figures,” said Andreas Georgiou, an investment analyst at XM.com, in a note.

Nonfarm payrolls data is scheduled for Friday at 8:30 a.m. Eastern.

The greenback “may also be impacted by fresh signals on trade. Note that U.S. Treasury Secretary Mnuchin arrived in China for negotiations today, so we may see some market attention fall back on trade issues,” Georgiou added.

Don’t miss:Why Apple’s earnings matter to dollar traders

What data are in focus?

Thursday’s batch of data helped dollar to remain steady after overnight weakness. Weekly jobless claims rose by 2,000 to 211,000 last week, well below the average of 225,000 forecast of economists surveyed by MarketWatch.

Meanwhile, the trade deficit sank 15% in March to $49 billion, the lowest level in six months, but the decline is likely just temporary. The U.S. is on track to run another large trade gap in 2018 that exceeds the deficit in the prior year. The data come just as the U.S. and China begin their trade summit.

The productivity of American businesses rose 0.7% in the first quarter, but there’s little sign of long-term improvement in what’s been a weak link for the U.S. economy.

The Markit services purchasing managers’ index for April showed that services rose to 54.6 in April versus 54 in March. A reading of at least 50 indicates improving conditions.

The Institute for Supply Management’s nonmanufacturing index fell to 56.8 in April, down from 58.8% in March. Any reading above 50% indicates improving conditions.

Factory orders rose 1.6% in March, the seventh increase in the last eight months. Economists polled by MarketWatch had expected a 1.3% gain.

In the U.K., a reading on service-sector activity came in lower than expected, in another sign of slowing in the British economy. The services purchasing managers’ index from IHS Markit/CIPS came in at 52.8 in April, compared with 53.4 forecast. It was, however, up from 51.7 in March, when the index hit a 20-month low.

Check out:MarketWatch’s Economic Calendar

In other assets, U.S. government bond yields were slightly lower, with the 10-year Treasury yield (XTUP:TMUBMUSD10Y=X) down 3 basis points at 2.941%. Yields and debt prices move in opposite directions.



Carla Mozée is a reporter for MarketWatch, based in London. Follow her on Twitter @MWMozee.



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