The U.S. dollar experienced a second consecutive session of decline following a mixed, yet generally robust set of U.S. economic data. The overall sentiment suggests that the Federal Reserve is likely to proceed with cutting interest rates by June, marking the first such move since the pandemic.
The U.S. dollar index was down 0.4% at 104.28, while against the yen, the dollar slid 0.4% to 149.92. Analysts are closely monitoring the dollar/yen pair as it breached the 150 level in recent days, prompting concerns about possible intervention by Japan to weaken its currency.
Despite Japan’s unexpectedly weak gross domestic product figures, resulting in the country losing its position as the world’s third-largest economy to Germany, the yen firmed. In the U.S., retail sales data for January showed an unadjusted decline of 0.8%, significantly lower than the expected 0.1% decline. However, economists cautioned against overinterpreting the sharp drop, as unadjusted retail sales typically fall in January.
Brad Bechtel, the global head of FX at Jefferies in New York, commented that the market is currently focused on daily data prints, but the overall scenario hasn’t changed significantly. He noted a recent market shift in pricing that had been unwound a bit, mentioning that the dollar is consolidating after an extended period of strength.
Additional U.S. economic data revealed a decrease in industrial production to -0.1% last month, lower than expected, but the Empire State manufacturing index improved in February. Despite these mixed numbers, the dollar saw a decline. Against the Swiss franc, the greenback sagged 0.6% to 0.8798 francs.
The euro gained 0.4% to $1.0768, and sterling climbed 0.3% to $1.2595. Analysts suggest that the dollar’s pullback might be temporary, especially as long as the divergence between U.S. outperformance and the rest of the world continues.
The federal funds futures market indicates an 83% probability of the first rate easing happening at the June meeting, according to LSEG’s rate probability app. Rate futures have priced in between three to four rate cuts this year, down from about five a few weeks ago.