The dollar index dipped but rebounded from a three-week low as investors awaited new data for insights into when the U.S. Federal Reserve might begin cutting interest rates. Despite a bounce earlier in the year due to strong growth and persistent inflation, the U.S. currency has been consolidating recently, demonstrating signs of fatigue among dollar bulls.
Analysts suggest that the dollar is likely to benefit from divergences with other countries, given the relatively stronger U.S. economy. However, the lack of a clear direction for the dollar indicates a need for additional data catalysts to guide market expectations. Investors are particularly focused on upcoming releases, such as the Personal Consumption Expenditures (PCE) data scheduled for the following week, which may offer further clues about Fed policy.
The dollar index, which measures the greenback against a basket of major currencies, was down 0.03% at 103.95. While it briefly touched 103.43, the lowest since February 2, it remained below the recent high of 104.97 reached on February 14. The minutes from the Fed’s January meeting, released, highlighted policymakers’ concerns about the risks of cutting interest rates too soon as they strive to bring inflation closer to the 2% annual target.
Fed Vice Chair Philip Jefferson emphasized that a comprehensive analysis of various economic indicators would guide decisions on interest rate cuts rather than focusing on a single metric. U.S. economic data released on Thursday showed unexpected declines in jobless claims, while business activity cooled in February, and existing home sales increased in January.
The U.S. dollar’s potential strength is also linked to weakness in other regions, including Canada and Australia, which might prompt their central banks to cut rates before the Fed. The euro inched up 0.03% to $1.0820, reaching $1.0889 earlier in the day, the highest since February 2. Sterling gained 0.17% to $1.2656 after robust British business activity data. The dollar rose 0.17% against the yen to 150.53, near a three-month high reached on February 13.
Traders are closely monitoring signs of intervention by the Bank of Japan and the Ministry of Finance if the yen continues to weaken. Japanese Finance Minister Shunichi Suzuki mentioned that there is “no defence line” for foreign exchange rates, but it is essential to monitor market volatility as the yen weakens against the dollar. In the cryptocurrency market, bitcoin increased 0.13% to $51,467.