Asian currencies fell, with the Chinese yuan and the South Korean won down 0.2% and 0.8%, respectively, as the U.S. 2-year bond yield rose above 4% and the dollar index rebounded from a one-year low hit last week. Data on Friday showed core retail sales fell less than expected in March, indicating the world's largest economy was holding up well. Expectations of an additional 25-basis point (bps) hike at the Federal Reserve's May 2-3 meeting rose to 81%, futures showed, with markets now seeing less than 60 bps worth of rate cuts in the second half of the year. Till last week, cuts of about 70 bps were being predicted within this year.
"The U.S. dollar's counter-trend comeback appears to be a correction following a significant decline last week," said Anindya Banerjee, head of research - FX and interest rates at Kotak Securities. We could witness a two-way movement in the rupee and the dollar till the Fed decision, he added. "Traders are betting on rate decreases in the second half of the year, but there will always be worry of more hikes from the Fed until and unless they get a definite pause." Some hawkish Fed speak aided higher interest rate expectations, with Fed Governor Christopher Waller commenting that despite a year of aggressive rate increases, U.S. central bankers "haven't made much progress" in returning inflation to their 2% target and need to move interest rates higher still. Meanwhile, Brent crude futures climbed above $86 per barrel on demand recovery hopes, stretching the gains built on OPEC+'s surprise output cut announcement. (Reporting by Anushka Trivedi; Editing by Janane Venkatraman)
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