U.S. Dollar Shows Strength Amid Fed Rate Cut Expectations
Investing.com – The U.S. dollar saw a slight dip in early European trade on Friday, yet remained on track for its most significant weekly increase in over a month as hopes for immediate Federal Reserve rate cuts faded away.
Dollar Index Down, But Weekly Gain Expected
As of 04:40 ET (08:40 GMT), the Dollar Index, which monitors the dollar against six other major currencies, was down 0.1% at 104.910. Regardless, it was set to achieve a 0.6% increase for the week, marking its largest weekly rise since mid-April.
Fed’s Data Impact on Dollar Performance
Recent data showcasing a surge in U.S. business activity in May led to a revision in expectations for interest rate cuts by the Federal Reserve. This propelled a rise in government bond yields and diminished the possibility of an immediate rate adjustment. The minutes from the Fed’s late-April meeting demonstrated growing unease among policymakers regarding inflation, bolstering the cautionary stance on monetary policy.
The probability of a rate cut in September, according to the CME Fedwatch tool, now stands at around 46%, compared to over 50% earlier. The upcoming release of the Personal Consumption Expenditures Price Index, the Fed’s preferred indicator of inflation, slated for May 31, will likely provide further insights into the potential timing of any rate adjustments.
Market Reactions in Europe and Asia
In Europe, the sterling slipped to 1.2696 following disappointing UK retail sales figures for April, while the euro remained steady at 1.0821 after Germany confirmed positive GDP growth in the first quarter of 2024. Analysts anticipate a rate-cutting cycle by the European Central Bank next month.
Meanwhile, the yen in Asia saw gains near a three-week high, with the pair rising to 157.07. The yuan traded higher at 7.2448, buoyed by a stronger midpoint fix by the People’s Bank of China amidst ongoing trade tensions with the U.S.
