Currency markets on edge as traders weigh economic data

16 Feb 2024 , 09:18 AM

As investors assess economic data and maintain their predictions that the Federal Reserve would lower rates in June, the dollar remained stable on Friday and was headed for its fifth straight weekly gain. Meanwhile, the yen was trading at the psychologically significant level of 150 per dollar.

The dollar index, which compares the value of the US dollar to six important competitors, increased by 0.09% to 104.35 on Friday after declining by 0.4% on Thursday. The index is expected to post its fifth consecutive weekly gain of 0.2%.

Following a mixed set of U.S. economic statistics on Thursday, the dollar fell. Retail sales in January declined more than anticipated, primarily due to a reduction in revenues at petrol stations and auto dealerships.

Initial claims for state unemployment benefits decreased by 8,000 to a seasonally adjusted 212,000 for the week ending February 10, according to a different report, providing more proof that the job market in the United States is still tight.

As per the CME FedWatch tool, traders are now pricing in an 80% chance of a rate decrease in June, shattering any last vestiges of expectations of an early and significant rate cut from the Fed due to a streak of solid economic data.

At first, the beginning of the Fed’s easing cycle was priced into the markets in March.

Traders now forecast 94 basis points of reductions this year, which is far less than the 160 basis points of cuts markets had factored in at the end of 2023 and closer to the Fed’s own estimate of 75 bps of easing.

Although the U.S. central bank has made great strides in reducing inflation pressures, Federal Reserve Bank of Atlanta President Raphael Bostic stated on Thursday that he was not yet prepared to advocate for interest rate decreases due to continuing risks.

Investor attention has been focused on remarks made by officials. On March 7, Federal Reserve Chair Jerome Powell is scheduled to provide the Senate Banking Committee with an update on biannual monetary policy.

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