The US Dollar (USD) is set for a weekly rise on Friday, bolstered by the robust US economy and central bankers’ resistance to rapid interest rate decrease; the uptick adds to the dollar’s steady gains, reshaping traders’ expectations.
This week saw the euro drop 0.6%, contributing to the dollar index’s 0.9% increase, marking a 1.9% rise in 2023. The Japanese yen, impacted by weak economic data and a recent earthquake, is the year’s largest loser, down about 5%.
Westpac’s Richard Franulovich emphasizes, “U.S. data and central bankers indicate markets are overly optimistic about 2024 rate cuts.” This, coupled with issues in China’s property and financial sectors, reinforces the dollar’s strength.
The euro ticked up 0.1% to $1.0887 on Friday, while the dollar index held steady at 103.33. The yen remained stable at 148.02 to the dollar after Japan’s core inflation rate showed a slowdown.
Erik Nelson of Wells Fargo notes, “The euro is trapped in a range. Despite significant events, its movement this year is minimal.”
Investors await next week’s data on the Federal Reserve’s preferred inflation measure.
The British pound dipped 0.17% to $1.2683 amid a sharp decline in UK retail sales in December.
Market expectations for Fed rate cuts this year have moderated to 140 basis points, down from 165 a week earlier. The likelihood of a March cut has also decreased.
US labor market data showed a significant drop in jobless claims, challenging the narrative for swift rate cuts.
Fed official Christopher Waller suggested the US economy’s resilience allows for cautious policy moves, dampening expectations for rapid rate reductions.
Two-year Treasury yields have climbed 22 basis points this week to 4.359%, reflecting short-term rate expectations.
Bitcoin fell to a five-week low at $40,484, influenced by profit-taking after US approval of spot bitcoin ETFs.
The Australian dollar, often rising with increased global market risk, climbed 0.4% to $0.6599 but remains about 3.2% down for the year.
