Currencies: April set to be strongest month for dollar since Trump election

The U.S. dollar advanced on Monday, putting a key index that tracks the currency on pace for its best month since the election of President Donald Trump, at the start of a data-heavy week that also features a Federal Reserve policy meeting.

The British pound continued its fall against other major currencies, as traders increasingly ruled out a rate hike this spring.

What are currencies doing?

The ICE U.S. Dollar Index DXY, +0.26%  rose 0.3% to 91.842, setting the benchmark on track for a 1.9% monthly advance, according to FactSet data. Such a gain would mark its best month since November 2016—the month of the presidential election. If the index slips from its current level, a 1.8% improvement on the month would still leave the gauge on track for its best month since February 2017.

The broader WSJ U.S. Dollar Index BUXX, +0.32%  was 0.3% higher at 85.59.

The pound GBPUSD, -0.1233%  dropped to $1.3766, compared with $1.3784 late Friday in New York, earlier trading around its lowest dollar level since mid-January.

The euro EURUSD, -0.4122%  declined to $1.2076 from $1.2131 on Friday, also marking a new lowest level since January in Monday’s session.

The yen USDJPY, +0.23%  also fell against the dollar, with the greenback buying ¥109.30, compared with ¥109.05 on Friday.

Most emerging markets are weaker on the back of the stronger greenback, though the Korean won USDKRW, +0.25%  started stronger during Asian session as continued headlines of rapprochement between North and South Korea keep supporting the currency. The dollar last bought 1,070.83 won, up slightly from 1067.85 late Friday in New York.

Read: Here’s why Turkey’s snap election won’t solve all the lira’s problems

What is driving the market?

The dollar kicked Monday off on a high note, ahead of a week filled with major economic releases such as nonfarm payrolls and manufacturing data, as well as the Federal Reserve’s two-day meeting that begins on Tuesday.

The Fed is widely expected to keep rates on hold when they conclude their meeting on Wednesday, but the rate setters could signal they are ready to hike in June.

Meanwhile, the British pound continued its descent, as investors started to price out a Bank of England rate rise at its May 10 meeting. Just two weeks ago, the market pricing implied a more than 80% probability for a hike in May, but following a string of disappointing economic data, any policy tightening is seen as off the table for now.

Domestic political trouble in the U.K. didn’t help sterling either, with Home Secretary Amber Rudd resigning over the weekend, following a scandal in which she was accused of misleading lawmakers about removal targets for illegal immigrants. She will be replaced by Sajid Javid, who is the son of Pakistani immigrants and the first member of an ethnic minority to hold the office of home secretary.

In Europe, German inflation eased in April, slipping further away from the European Central Bank’s inflation target of just below 2%. This follows a cautious-sounding ECB last week, which put the spotlight on eurozone data going forward.

Check out: Draghi just made coming eurozone data a lot more important

What are strategists saying?

“A busy week for all the major currencies is ahead of us, and traders’ interest should remain fixed on the fresh news and data coming our way. The U.S. nonfarm payrolls report on Friday would normally be the most market moving event of the next few days, but it’s the FOMC meeting on Wednesday that is at the top of our watch list,” said Konstantinos Anthis, head of research at ADS Securities, in a note.

“The Fed is on a course to raise rates again in June and we believe that they will use this month’s meeting to telegraph their intent to pull the trigger again and this will send the dollar sharply higher,” he added.

What else is in focus?

The PCE inflation index was flat in March, with the core index up 0.2%. Year over year, the indicator rose to 2%, hitting the Fed’s target, from 1.7% before.

Read: Inflation hits Fed’s 2% target, PCE shows, in prelude to faster rise in U.S. interest rates

Personal income for the same months advanced 0.3%, while consumer spending increased for the first time in three months, growing 0.4%.

The Chicago PMI for April came in at 57.6, slightly up from 57.4 before. Pending home sales rose 0.4% in March.

In other assets, U.S. stocks ended the day lower, with the Dow Jones Industrial Index DJIA, -0.61%  and S&P 500 SPX, -0.82%  in the red.

Longer-dated U.S. Treasury yields slipped a little, with the 10-year note TMUBMUSD10Y, -0.50%  last yielding 2.95%.

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