The dollar slipped 0.2% to 103.81 on Monday. Still, it remained close to its six-week high after a flurry of economic data reinforced market expectations of tighter monetary policy from the Federal Reserve. The U.S. dollar index, which measures the dollar against six other major currencies, is still up almost 1.8% for the month and on track for its first monthly gain since September.
Market Expectations of Tighter Monetary Policy
Data from the U.S. economy in recent weeks have pointed to a tight labor market, sticky consumer prices, robust retail sales, and higher producer prices, which has raised expectations that the U.S. central bank has more to do to control inflation and that interest rates will rise.
Impact of U.S. Markets Closure
Liquidity is expected to remain thin on Monday as U.S. markets are closed for Presidents' Day.
Analysts have stated that the dollar's move may have run its course, with markets expecting the Fed funds rate to peak just under 5.3% by July. Hawkish comments from Fed officials have also supported the U.S. dollar as they signal that interest rates will need to rise to quash inflation.
Swedish Crown Outperforms
Sweden's crown outperformed after core inflation ticked up in January, and minutes from the central bank's last meeting showed that policymakers backed more rate hikes to bring inflation under control. The euro fell 1.1% against the Swedish crown to 11.05 crowns, while the dollar was down 1% to 10.3405.
Impact of ECB and Fed Policymakers
Two ECB policymakers said on Friday that interest rates in the eurozone have some way to rise, pushing up market pricing for the peak ECB rate. The euro was little changed against the dollar at $1.0690, just above Friday's six-week low of $1.06125. ING's Turner says that the U.S. disinflation process will have another leg in the second quarter, while in Europe, inflation is likely to be stickier. He also says that euro rates will likely stay at higher levels, whereas dollar rates will more easily turn lower, which could support the euro in the first half of the year.
Dollar vs. Other Currencies
The dollar was down 0.2% against the yen to 133.94 after hitting a two-month high of 135.12 yen on Friday. The Australian dollar rose 0.6% to $0.6918 ahead of minutes from Tuesday's Reserve Bank of Australia's latest policy meeting. The kiwi rose 0.1% to $0.6249, ahead of a Reserve Bank of New Zealand rate decision on Wednesday, at which the bank is expected to scale down to a half-point interest rate increase.