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Dollar Rebounds Amid Increased Fed Rate Hike Expectations

The U.S. dollar recovered on Monday, reaching a one-month high against the yen as core U.S. retail sales resilience and strong Wall Street bank earnings raised expectations for a May interest rate hike from the Federal Reserve.


Core Retail Sales Data Significance

Despite a larger-than-expected drop in U.S. retail sales in March, core retail sales, excluding automobiles, gasoline, building materials, and food services, only decreased by 0.3% last month, according to data released on Friday.

Wall Street Banks' Impressive Earnings

First-quarter 2023 earnings from JPMorgan Chase & Co, Citigroup Inc, and Wells Fargo & Co exceeded expectations, alleviating concerns about the banking crisis that emerged in March.

Japanese Yen Under Pressure

The dollar climbed to a one-month peak of 134.22 against the yen on Monday, as the Bank of Japan maintained its dovish stance, putting pressure on the Japanese currency.

U.S. Dollar Index Stabilizes

The U.S. dollar index stabilized at 101.65, distancing itself from Friday's one-year low of 100.78, marking the fifth consecutive weekly loss.

Euro and Sterling Fluctuations

The euro dipped slightly to $1.0986, while the British pound fell 0.02% to $1.2412.

U.S. Bank Earnings Impact on Interest Rates

CMC Markets' market analyst Tina Teng stated that better-than-expected U.S. bank earnings indicate a healthy U.S. economy, which could increase expectations for the Federal Reserve to continue raising interest rates.

Rising Odds of May Interest Rate Hike

Money markets now estimate an approximately 81% chance of a 25 basis point interest rate increase by the Federal Reserve in May, up from around a 69% chance last week.

Inflation Expectations on the Rise

The University of Michigan's preliminary April reading showed a rise in one-year inflation expectations from 3.6% in March to 4.6%.

U.S. Treasury Yields Remain Elevated

Yields on U.S. Treasuries continued to hold elevated levels on Monday, retaining most of Friday's gains.

Fed Officials Signal Potential Rate Hike

Hawkish remarks from Fed Governor Christopher Waller and Atlanta Fed President Raphael Bostic suggested the possibility of an additional 25 basis point rate hike next month.

AUD and NZD Currency Movements

The Australian dollar gained 0.01% to $0.67095, while the New Zealand dollar fell 0.19% to $0.61985.

Chinese Economic Data in Focus

This week's economic data releases from China will provide traders with insight into the recovery of the world's second-largest economy.

Moderate Growth Expected in Chinese Data

MUFG analysts expect March activity data to reveal a moderate acceleration in growth momentum but predict no large positive surprises.

Offshore Yuan Experiences Slight Decline

China's offshore yuan dropped around 0.1% to 6.8786 per dollar, following an unexpected 14.8% surge in Chinese exports in March, breaking a five-month streak of declines.