Dollar edges lower on US Slowdown Fears

17 May 2024 , 08:25 AM

On Friday, the dollar was about to plunge below the euro for the first time in two and a half months as the possibility of rate cuts increased due to evidence of slowing inflation and a weakening U.S. economy.

This week, the euro has gained 0.9% compared to the dollar, breaking through resistance at $1.0855 and reaching a high of $1.0895 after U.S. inflation data showed a decrease.

The annual U.S. inflation figures for April were expected, but because they were lower than the previous month’s, they bolstered hopes that the Federal Reserve may drop interest rates in September and December, which fuelled rallies in Treasuries and equities and put pressure on the dollar.

In April, U.S. retail sales were likewise flat and less robust than anticipated, while manufacturing output dropped short of expectations.

In the meanwhile, recent data has revealed some positive surprises, even if markets are pricing in European rate cuts starting in June. The German economy strengthened last quarter more than anticipated, and investor confidence is at its highest level in two years.

With the New Zealand dollar up 1.7% and heading for its best week of the year, the Australian and New Zealand dollars are both up more than 1% against the US dollar this week.

The Australian dollar fell from a four-month high of $0.6675 as the likelihood of another rate hike appeared to be reduced by an unexpected increase in unemployment data.

With traders eyeing next week’s central bank meeting, where the official cash rate is anticipated to remain at 5.5%, the New Zealand dollar was last stable at $0.6120.

This week, sterling has increased 1.1% to $1.2664. At 155.48, the Japanese yen has remained largely stable.

In the world of cryptocurrencies, bitcoin has increased 6.6% this week to $65,343.

Later in the session, Chinese retail sales and industrial output data are expected, and the final European CPI figures are released on Friday.

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