The dollar index (DXY00) Tuesday recovered from early losses and finished up +0.07%. The dollar posted a 5-1/2 month high Tuesday based on hawkish Fed comments. Fed Chair Powell, San Francisco Fed President Daly, and Fed Vice Chair Jefferson said if inflation remains elevated, the Fed will hold interest rates higher for longer. The dollar also garnered support on Tuesday’s news that US March manufacturing production rose more than expected. According to federal funds futures contracts, the chance of a Fed rate cut at the June FOMC meeting has fallen to 20% from 66% at the start of the month.
The dollar on Tuesday initially moved lower after US Mar housing starts and building permits fell more than expected, a dovish factor for Fed policy. The dollar was also under pressure as stocks stabilized, which curbed liquidity demand for the dollar.
