The US dollar strengthened after a still-strong jobs report for March on Friday added to expectations that the Federal Reserve will raise rates again in May, while the Japanese yen weakened as Japan's new central bank governor Kazuo Ueda said he was in no rush to return massive stimulus.
US employers maintained a strong hiring pace in March, adding 236,000 jobs, pushing the unemployment rate back down to 3.5% and signaling labor market resilience that will keep the Federal Reserve on track to raise interest rates again next month.
According to Marc Chandler, chief market strategist at Bannockburn Global Forex in New York, market sentiment is likely to swing back in favor of a Fed rate hike early next month.
The US dollar index strengthened 0.45% against a basket of currencies at 102.192, the highest since April 3. The euro slipped 0.51% to $1.0841, its lowest since April 3.
Wednesday's consumer price data is the main focus of the U.S. economy. this week and is expected to show that headline inflation increased by 0.3% in March, while core inflation increased by 0.4%.
Investors are also closely watching data on bank lending after the collapse of Silicon Valley Bank in mid-March sparked concerns about the effects of bank contagion and prompted the government and the Fed to intervene to boost liquidity in the sector.
The latest Fed data showed that commercial and industrial loans at commercial banks fell to $2.756 trillion in the week ended March 29, from $2.824 trillion in the week ended March 15.
The Fed futures market is now pricing in a 70% probability that the Fed will raise rates by an additional 25 basis points at its May 2-3 meeting.
The US dollar rose against the Japanese yen after Japan's new central bank governor Kazuo Ueda said it was appropriate to keep the bank's loose monetary policy for now as inflation has yet to reach 2% as a trend.
