Dollar gains before Fed meeting, jobs data

The dollar rose on Monday after data showed that U.S. manufacturing pulled off a three-year low in April before a busy week for central banks, with the Federal Reserve expected to raise interest rates by an additional 25 basis points on Wednesday.

The Institute for Supply Management (ISM) said that its manufacturing PMI rose to 47.1 last month from 46.3 in March, which was the lowest reading since May 2020.

"Broadly, the data show that the manufacturing sector is still in a recession, but there are some encouraging signs of stabilization in the details," Thomas Simons, a money market economist at Jefferies, said in a note.

Other data on Monday showed that U.S. construction spending increased more than expected in March, boosted by investment in nonresidential structures, but single-family homebuilding remained depressed amid higher mortgage rates.

Trading was largely subdued, however, as investors waited on the conclusion of the Fed's two-day meeting, where the focus will be whether the U.S. central bank indicates that it expects to pause rate increases after May, or if it keeps the possibility of an additional hike in June or later alive.

“Many people say the Fed will signal that it’s going to pause, and I don’t think it can afford to do that,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York, adding that “the Fed wants to maintain some optionality and flexibility.”

The dollar gained on Friday after data showed that core inflation stayed elevated in March. Consumer price inflation data next week will also be watched for further signs of inflation remaining high.

Jobs data on Friday is this week’s main economic focus. It is expected to show that employers added 180,000 jobs in April. (USNFAR=ECI)

The dollar index DXY was last up 0.35% on the day at 102.08. The euro EURUSD fell 0.37% to $1.0974. The single currency is holding just below a one-year high of $1.1096 reached last Wednesday.

The European Central Bank (ECB) is widely expected to raise rates for the seventh straight meeting on Thursday, with a 50 basis points increase on the table.

The yen hit a seven-week low against the dollar after the Bank of Japan on Friday kept ultra-low interest rates but announced a plan to review its past monetary policy moves.

The dollar was last up 0.74% at 137.35 yen USDJPY.

The Reserve Bank of Australia is also widely expected to extend a rate pause on Tuesday.

The Aussie dollar AUDUSD was last up 0.42% at $0.6645. It is up from a seven-week low of $0.6573 on Friday.

Trading volumes were thin on Monday with markets in many countries closed for the May Day holiday.

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Currency bid prices at 11:06AM (1506 GMT)