The Dollar Holds Near 5-Week Peak as Fed Rate Cut Bets Tempered
Robust U.S. Retail Sales Data Support Dollar
The dollar remained close to a five-week high against major currencies as strong U.S. retail sales data reinforced expectations that the Federal Reserve will not rush to lower interest rates.
Dollar Strengthens Against Major Peers
The dollar index, which measures the currency against a basket of six rivals, held steady at 103.34 in Europe, after reaching 103.69 on Wednesday for the first time since Dec. 13.
Traders Reduce Rate Cut Expectations
Traders have decreased the likelihood of a first Federal Reserve rate cut by March to 61%, down from over 65% on Tuesday, according to CME’s FedWatch Tool.
Fed Officials Push Back Against Rapid Policy Loosening
Market expectations for around 145 basis points of cuts by the end of the year remain, despite Fed officials, including Governor Christopher Waller, pushing back against expectations of rapid policy loosening.
U.S. Data and Risk-Off Sentiment Favor Dollar
Strong U.S. retail sales report has led to lower rate cut expectations and a risk-off sentiment, which is positive for the dollar, according to Niels Christensen, chief analyst at Nordea.
Market Speculation on Dollar-Yen Pair
The dollar reached 148.525 yen on Wednesday for the first time since the end of November, but was last trading 0.2% lower on the day at 147.895 yen.
Factors Affecting Dollar-Yen Pair
Investors have been gradually pricing out hawkish Bank of Japan wagers, especially after the New Year’s Day quake in central Japan. The BOJ meets on policy next week.
Impact of ECB’s Account on Euro
The euro was little changed at $1.0880 after the European Central Bank’s December meeting offered few clues about the timing of the first rate cut.
Sterling Remains Flat
Sterling was also flat at $1.2676, following a rally on Wednesday after data showed inflation unexpectedly accelerated in December.
Australian Dollar Recovers
The Australian dollar was up 0.2% at $0.6566, recovering from earlier losses when data showed an unexpected drop in employment in December.
Impact of Fed Expectations on Australian Dollar
The next directional move for the Australian dollar remains in the hands of Fed expectations and the U.S. dollar, according to Matt Simpson, senior market analyst at City Index.
