In comparison to key peers, the US dollar reached a five-week high on Monday as the safe-haven currency gained from domestic inflation concerns and global growth concerns, extending gains after its biggest weekly climb since September.
The Turkish lira sank to a two-month low after weekend elections looked headed for a runoff, while the Thai baht rallied almost 1% after Thailand’s opposition routed military-allied parties also in weekend polls.
The Greenback Gains Momentum as Inflation Expectations Soar
The Thai baht increased by about 1% as the opposition in Thailand defeated parties supported by the military in weekend elections, while the Turkish currency fell to a two-month low with the appearance of a runoff.
These probabilities have increased from nearly nil before the University of Michigan poll to 13% as of late. By year’s end, the market is still expecting up to three quarter-point reductions.
Either data indicating that households have significantly heightened inflation expectations (higher “inflationary expectations”) or alarming monthly inflation statistics can be sufficient.
The key, though, is more solid wage statistics or indications of an increase in workers’ take-home income.
The bank’s rapid rate-hiking cycle was initially sparked by evidence of rising inflation and greater pay rises in May of last year.
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RBA Contemplates Interest Rate Hike
It will find out on Wednesday if Australian employees’ take-home pay is increasing at a rate that would push the RBA to raise interest rates for a 12th time.
It’s fair to argue that the RBA has prioritized wage growth for many years. Prior to the first interest rate increase in May, the bank’s own analysis and commentary made clear its conviction that, for inflation to really take off, wages growth would need to go up significantly.
Official data that has recently been made public reveals that up to this point, salary growth has not been significantly rising.
The bank’s concern over wage growth is understandable, though, given that inflation typically rises in tandem with wage growth.