Dollar clings to modest gains on data

Illustration shows U.S. Dollar banknotes
Woman holds U.S. dollar banknotes in this illustration taken May 30, 2022. REUTERS/Dado Ruvic/Illustration/File Photo
  • U.S. jobless claims fall, showing labor market tightness
  • Fed funds futures price in peak of 5.34% in July
  • Stronger dollar will result in harder U.S. landing

NEW YORK, Feb 23 (Reuters) - The dollar clung to modest gains against its major peers on Thursday, bolstered by strong economic data that continues to suggest the U.S. Federal Reserve's monetary policy tightening could be extended if it is to bring down the highest inflation in decades.

A succession of stronger-than-expected data and recent rhetoric from "a few" policymakers in favor of larger interest-rate increases have been supporting the greenback this month. Adding to that, the number of Americans filing new claims for unemployment benefits unexpectedly fell last week, showing a still-tight labor market and a resilient U.S. economy.

"February just threw everyone off side because the data just came strong one after the other ... really stressing this fact that we're not slowing down enough, that inflation is staying sticky," said Clifton Hill, global macro portfolio manager at Acadian Asset Management in Boston. "And so, through all that, as yields have risen, that has just put a bid to the dollar, as the anticipated growth slowdown is not materializing but actually the opposite - it is reaccelerated."

The euro , down 0.09% in late New York trading, remained range bound at $1.0597. Sterling also eased 0.22% at $1.2017, shrugging off signals from a recent PMI survey for the likelihood of another Bank of England hike in March.

That left the dollar index , which tracks the greenback against six major peers, up 0.06% higher than its previous close at 104.57, but slightly off the day's high of 104.78.

"We've got more big ticket numbers out tomorrow (Friday). And before we next hear from the Fed, we'll get another nonfarm payrolls report and another CPI. So the data holds the keys to the extent to which the Fed tightens policy," said Joe Manimbo, senior market analyst at Convera in Washington.

Fed funds futures traders are now pricing for the federal funds rate to reach 5.34% in July, and staying above 5% all year. That rate is currently between 4.50%-4.75% range, having risen rapidly from the near-zero level in March 2022.

Hill said a stronger dollar will result in a harder landing if the economy keeps accelerating and inflation remains sticky, which will send terminal rates higher.

"The market is searching for a binary outcome because that's the way the markets have been trained post-GFC (global financial crisis). And I think investors are grappling with the reality, painfully, that it's going to be much more nuanced and challenging," Hill said. "And so, you're really going to have to be balanced in terms of a portfolio perspective, or at least tactical."

The yen was last trading at 134.66 per dollar as investors await a speech from incoming Bank of Japan Governor Kazuo Ueda, hoping for clues on its bond yield control policy.

(This story has been refiled to say "have been" instead of "been have" in the penultimate paragraph)


Currency bid prices at 3:47PM (2047 GMT)

Reporting by Laura Matthews; Editing by Will Dunham

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