Last update: April 28, 2023, 02:41 IST
22 central banks have their currencies pegged to the US dollar. (Representative image/Reuters)
Economists polled by Reuters had forecast GDP growth of 2.0%
The dollar rose on Thursday as weaker-than-expected US economic growth in the first quarter is not seen as likely to deter the Federal Reserve from raising interest rates next week.
The advance estimate for first-quarter gross domestic product (GDP) showed an annualized rate of 1.1% over the period. The economy grew at a 2.6% pace in the fourth quarter. Economists polled by Reuters had forecast GDP to grow at a rate of 2.0%.
However, investors focused on the quarterly inflation figure in the GDP report. Prices for basic personal consumption expenditure rose 4.9% in the first three months of the year, beating the consensus of 4.7% and above the fourth quarter figure.
“The weaker growth outlook tells us that the Fed is going to have a hard time continuing to raise interest rates without crushing the economy,” said Amo Sahota, director of currency advisory firm Klarity FX in San Francisco. .
“But the conundrum of what to do with inflation still lingers. The Fed has been telling us this for a long time. So this (core PCE) number just reinforces the fact that we’re going to have a rate hike next week. “, he added.
Markets priced a 90% chance of a 25 basis point rate hike at May’s policy meeting, with a pause factored in afterwards.
A separate Labor Department report on Thursday showed initial claims for state unemployment benefits fell from 16,000 to a seasonally adjusted 230,000 for the week ending April 22. Economists expected 248,000 claims in the past week.
The report suggested a still tight labor market and also supported expectations for next week’s rate hike.
In afternoon trading, the dollar rose 0.2% against the yen to 134 yen as the Bank of Japan began a two-day policy meeting, the first under new governor Kazuo Ueda.
The market consensus is that Ueda will leave ultra-easy policy settings unchanged on Friday, but no one is ready to rule out another surprise like the shock doubling of the 10-year bond yield band in December.
The dollar index rose 0.1% to 101.50.
The euro, meanwhile, slipped 0.1 to $1.1024.
Eurozone outperformance was a key factor for the euro. Germany revised its growth forecast up again on Wednesday, and a survey showed a continued recovery in consumer confidence.
Currency bids at 2:56 p.m. (6:56 p.m. GMT)
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(This story has not been edited by News18 staff and is published from a syndicated news agency feed)