Categories: Economy

Dollar gains as drop in US jobless claims boosts rate-hike bets

[1/4]US dollar banknotes are seen in this illustration taken on March 10, 2023. REUTERS/Dado Ruvic/Illustration/File photo

NEW YORK, July 20 (Reuters) – The dollar gained against a basket of currencies on Thursday after data showed the number of Americans filing new claims for unemployment benefits unexpectedly fell last week, raising expectations that the Federal Reserve may continue to raise interest rates if the economy remains strong.

Initial claims for state unemployment benefits fell 9,000 to a seasonally adjusted 228,000 for the week ended July 15, the Labor Department said. Economists polled by Reuters had forecast 242,000 claims in the latest week.

Odds that the US central bank will continue to raise rates after a widely expected 25-basis-point hike next week are higher after the data. Traders in Fed funds futures are pricing in an additional 34 basis points of tightening, from expectations of another 32 basis points increase on Wednesday.

“The market was looking for signs of a U.S. takedown and it never happened,” said Adam Button, chief currency analyst at ForexLive in Toronto. “Today’s initial jobless claims number underscores once again that the US has an extremely strong labor market and that the Fed still has a lot of work to do.”

Other data on Thursday showed that US existing home sales fell to a five-month low in June, depressed by a persistent shortage of homes on the market that slowed the pace of annual home price declines.

Investors will focus on Fed Chair Jerome Powell’s comments after the US central bank’s interest rate decision on Wednesday for any new signs on whether it is likely to raise rates again in September.

The dollar fell after cooling consumer and producer inflation releases last week indicating that price pressure may be closer to returning to the Fed’s 2% inflation target.

The dollar index rose 0.62% against a basket of currencies to 100.85. The euro fell 0.67% to $1.1127.

The European Central Bank will raise interest rates by 25 basis points on July 27, according to all economists in a Reuters poll, a small majority who now also expect another increase in September.

Sterling continued to fall after data on Wednesday showed Britain’s inflation rate was the slowest in more than a year at 7.9%, likely easing some pressure on the Bank of England to keep raising interest rates. A key British mortgage rate also fell on Thursday for the first time in almost two months.

The British currency was down 0.61% at $1.2859 and was down from $1.3144 on Thursday, which was its highest level since April 2022.

The greenback rose 0.35% against the Japanese yen to 140.20.

Japan’s government on Thursday forecast inflation above the central bank’s 2% target this year, acknowledging the widening price hike that could keep alive market expectations of an end to ultra-low interest rates.

The greenback lost 0.77% against the offshore Chinese yuan to 7.1764.

China left its lending benchmarks unchanged on Thursday, and its central bank added that it had raised a cross-border financing ratio that dictates the maximum any company can borrow as a proportion of its net assets, allowing domestic companies to tap overseas markets for funds.