The U.S. dollar saw a marginal increase, extending its upward trend for the fifth consecutive week, propelled by robust inflation data. However, the yen remained close to the psychologically significant 150 level. With U.S. markets closed for the Presidents’ Day holiday, trading volumes are expected to remain low throughout the day.
The dollar index, measuring the currency against six peers, rose by 0.13% to 104.35, following a 0.18% gain the previous week. It reached its highest level since mid-November last Tuesday at 104.97 after January’s U.S. inflation surpassed expectations, leading investors to revise down expectations for Federal Reserve interest rate cuts in 2024. However, it retreated on Thursday after data revealed a decline in retail sales for the previous month.
Chris Turner, Global Head of Markets at ING, noted, “In theory last week should have been a good week for the dollar, but the dollar didn’t really hold on to its gains. Are we getting near to the point where the pricing in the Fed cycle is about right?
The euro declined by 0.12% to $1.0763 after reaching a three-month low of $1.0695 last week, while sterling remained unchanged at $1.2595. Upcoming survey-based purchasing managers’ index data on Thursday will provide insights into the economic health of the eurozone and the UK for February.
Investors eagerly await the minutes from the Federal Reserve’s recent meeting scheduled for Wednesday, with expectations of gaining clarity on the central bank’s outlook. Money market pricing indicates investors anticipate approximately 90 basis points of Fed rate cuts this year, significantly down from around 145 basis points at the beginning of February.
Against the yen, the dollar dipped 0.1% to 150.08 yen, maintaining a 6% increase against the Japanese currency this year. Japan’s persistent ultra-loose monetary policy has contributed to a substantial yield gap between the two countries, enhancing the appeal of the dollar. Speculation among investors about potential intervention by Japanese authorities to support their currency has increased.
Finance Minister Shunichi Suzuki warned last week that “rapid moves are undesirable for the economy.” Weekly data from the U.S. markets regulator revealed a rise in speculators’ net short position against the yen to a more than two-month high of $9.2 billion.
China’s onshore yuan experienced minimal movement as investors returned from the week-long Lunar New Year break, despite surging tourism revenues during the holiday. The onshore yuan last traded at around 7.1987 per dollar.