# Dollar heads for first weekly gain since February
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2023-04-21
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: Dollar Heads for First Weekly Gain Since February
Meta Description: Investors anticipate Fed rate hike in May, boosting dollar. Euro sees slight recovery amid euro zone growth. Currency market dynamics in focus.
URL: https://financedigest.com/dollar-heads-for-first-weekly-gain-since-februaryhtml

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# Dollar heads for first weekly gain since February

By Amanda Cooper

LONDON (Reuters) – The dollar headed for its first weekly gain in nearly two months on Friday as investors raised their bets that the Federal Reserve will increase rates in May, while the euro drew some support from a surprising recovery in the euro zone economy in April.

The dollar index, which measures the performance of the U.S. currency against six others, rose 0.2% on the day and headed for a [weekly gain](https://www.financedigest.com/dollar-steadies-near-16-week-low-yuan-set-for-biggest-weekly-gain-since-2005.html "Dollar steadies near 16-week low, yuan set for biggest weekly gain since 2005") of 0.4%, its first since late February.

The [recovery in the euro zone](https://www.financedigest.com/euro-zone-services-booming-but-sentiment-recovery-may-have-stalled-ecbs-lane.html "Euro zone services booming but sentiment recovery may have stalled -ECB’s Lane") unexpectedly gathered pace this month, thanks to a boom in services sector demand compensating for a deepening decline in manufacturing.

Preliminary surveys showed that same dynamic in Germany and France, the region’s two [largest economies](https://www.financedigest.com/bangladesh-moves-up-the-ranks-and-could-become-the-24th-largest-economy-by-2036.html "Bangladesh moves up the ranks and could become the 24th largest economy by 2036").

The euro was 0.1% [weaker against the dollar](https://www.financedigest.com/oil-prices-rise-as-weaker-dollar-offsets-china-covid-19-concerns.html "Oil prices rise as weaker dollar offsets China COVID-19 concerns") to $1.0959, but recovered from a session low of $1.0938. Against sterling, it rose 0.3% to 88.84 pence.

But the story this week has been one of [dollar dominance](https://www.financedigest.com/shares-slip-dollar-dominates-as-recession-looms.html "Shares slip, dollar dominates as recession looms"). Fed officials have been at pains to point out that [inflation remains uncomfortably high and rates must keep rising](https://www.financedigest.com/ecb-survey-shows-rising-inflation-expectations-despite-energy-price-falls.html "ECB survey shows rising inflation expectations despite energy price falls").

[Money markets](https://www.financedigest.com/frothy-stock-market-valuations-a-dash-for-cash-and-digital-money-all-on-bank-of-englands-risk-radar.html "Frothy stock market valuations, a dash for cash and digital money – all on Bank of England’s risk radar") show traders believe there will be a quarter-point U.S. [rate hike](https://www.financedigest.com/russia-could-hike-rates-in-2023-if-inflation-risks-have-big-impact-cenbank.html "Russia could hike rates in 2023 if inflation risks have big impact -cenbank") next month, which in theory is supportive of the dollar, but this will be quickly followed by a series of rate cuts, as the economy slows, which kept the U.S. [currency’s gains](https://www.financedigest.com/evergrande-jitters-pull-risk-currencies-lower-dollar-gains-on-safety-bid.html "Evergrande jitters pull risk currencies lower, dollar gains on safety bid") in check.

The rhetoric from the Fed is quite clear, but the market is still forging its own path of these [rate cuts](https://www.financedigest.com/czech-central-bank-vice-gov-unlikely-to-vote-for-rate-cut-newspaper.html "Czech central bank vice-gov unlikely to vote for rate cut -newspaper") by the end of the year,” City Index strategist Fiona Cincotta said.

At some point, there is going to be a reconciliation here – either the Fed gives some clues of a dovish pivot, or the [market needs](https://www.financedigest.com/why-you-need-to-embrace-nostalgia-marketing-right-now.html "Why You Need to Embrace Nostalgia Marketing Right Now") to reassess what’s going to be actually happening over the rest of the year,” she said.

Data on Thursday added to those concerns about recession, as the number of new claims for unemployment benefits rose, while [factory activity](https://www.financedigest.com/oil-slips-on-china-covid-curbs-weak-factory-activity-data.html "Oil slips on China COVID curbs, weak factory activity data") in the mid-Atlantic manufacturing heartland hit a three-year low this month.

“The U.S. economy is heading to recession,” said Joseph Capurso, head of [international and sustainable economics](https://www.financedigest.com/credit-squeeze-biggest-threat-to-economic-outlook-fidelity-international-says.html "Credit squeeze ‘biggest threat’ to economic outlook, Fidelity International says") at Commonwealth Bank of Australia (CBA).

But the problem for the Fed is that inflation is still sticky at a [higher rate](https://www.financedigest.com/credit-suisse-offers-higher-deposit-rates-in-asia-to-woo-the-wealthy-sources.html "Credit Suisse offers higher deposit rates in Asia to woo the wealthy – sources"), so we still think the Fed is going to increase interest rates at least once more.

Flash U.S. business activity surveys are due later and could offer a fuller picture of global economic health.

The pound took a knock from a drop in UK [retail sales](https://www.financedigest.com/italy-inflation-adjusted-retail-sales-fell-in-2022.html "Italy inflation-adjusted retail sales fell in 2022") in March, as bad weather and high inflation kept British consumers away from the shops.

Paul Dales, chief UK economist at [consultancy Capital](https://www.financedigest.com/bank-of-england-consults-on-remaining-basel-bank-capital-rules.html "Bank of England consults on remaining Basel bank capital rules") Economics, said the survey by polling firm GfK suggested a brighter picture than the rain-affected March sales data.

That said, even though the worst of the declines in retail sales are in the past, higher [interest rates](https://www.financedigest.com/london-stocks-slip-ahead-of-key-interest-rate-decisions.html "London stocks slip ahead of key interest rate decisions") will restrain spending this year,” he said.

Sterling was last down 0.3% at $1.2404, having dropped by as much as 0.51% earlier on.

The yen was one of the lone outliers, [edging higher against the dollar](https://www.financedigest.com/dollar-edges-higher-as-market-awaits-clues-from-u-s-fed.html "Dollar edges higher as market awaits clues from U.S. Fed") after data showed Japanese consumer inflation held steady above the central bank’s target in March, putting pressure on the Bank of Japan (BOJ) to ditch its ultra-loose monetary policy stance.

Incoming Governor Kazuo Ueda chairs his first [BOJ policy](https://www.financedigest.com/yen-retreats-after-boj-policy-tweak-sparked-surge.html "Yen retreats after BOJ policy tweak sparked surge") meeting next week.

I don’t think Ueda is going to change policy at his first meeting [next week,”](https://www.financedigest.com/hungary-cenbank-seen-hiking-100-bps-to-11-75-next-week-as-inflation-surges.html "Hungary cenbank seen hiking 100 bps to 11.75% next week as inflation surges") said CBA’s Capurso. “But there have been a few hints about a policy review, so that suggests to me that … they’ll move in the [next few months.”](https://www.financedigest.com/prince-harry-and-meghan-to-visit-britain-next-month.html "Prince Harry and Meghan to visit Britain next month")

(Additional reporting by Rae Wee in Singapore; Editing by Jamie Freed, Kim Coghill and Susan Fenton)


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