Dollar rebounds from four-month losing streak on higher U.S. rate expectations

SINGAPORE  – The U.S. dollar resumed its rally on Tuesday following a brief pause at the start of the week, putting it back on track to end the month with an impressive gain after a four-month losing streak.

Market expectations that the U.S. Federal Reserve would have to raise rates more than initially expected, which gained steam following a slew of upbeat economic data from the United States, have sent the greenback on a tear in recent weeks.

The dollar index, which measures the currency against a basket of peers, rose 0.18 percent to 104.84 in Asia trade and was eyeing a monthly gain of more than 2.5 percent, its first since September.

Resilience in the world’s largest economy has given reason for Fed policymakers to stay hawkish, with investors now expecting the Fed funds rate to peak just above 5.4 percent by September.

“The dollar has made its rebound – fully justified on the strength of the January numbers that came through in February, and the repricing for the Fed,” said Ray Attrill, head of FX strategy at National Australia Bank, referring to the strong run of U.S. economic data.

“I think we’re sort of lurching from one major data print to another… The next move in the dollar is really a function of how the February data starts to play out in March.”

Elsewhere, sterling gave up some gains from the previous session, slipping 0.18 percent to $1.2041.

It had surged 1 percent on Monday after Britain and the European Union announced a new deal for post-Brexit trading arrangements for Northern Ireland, known as the Windsor Framework.

That brightened the outlook for the post-Brexit UK economy, with British Prime Minister Rishi Sunak saying it would pave the way for a new chapter in London’s relationship with the bloc.

The euro was last 0.22 percent lower at $1.0585, having similarly risen 0.6 percent in the previous session on the news.

The British parliament is expected to vote on the deal, with the opposition Labor Party saying it will vote in favour.

The leader of Northern Ireland’s Democratic Unionist Party (DUP) said his party was working through the details.

“The mood music suggests that this thing will succeed … there probably is scope for some sort of residual sterling strength here,” said Attrill.

“The real thing is, is this a springboard for a stronger, much improved removal of trade frictions more generally, between the UK and the EU?”

Against the Japanese yen, the dollar edged 0.07 percent higher to 136.31. Incoming Bank of Japan (BOJ) Governor Kazuo Ueda has thus far offered few clues on whether the bank could exit its massive stimulus imminently, though he indicated that he had ideas on such a move.

Incoming Deputy Governor Shinichi Uchida on Tuesday likewise brushed aside the chance of an immediate overhaul of the BOJ’s ultra-loose monetary policy.

The kiwi fell 0.3 percent to $0.61475, while the Aussie slumped 0.28 percent to $0.6720.

Data released on Tuesday showed Australia’s current account surplus rose sharply in the December quarter, while separate data pointed to a strong rebound in Australian retail sales in January following a surprise drop in December