Dollar Holds Near One-Month High on Upbeat U.S. Retail Sales, Yen Weakens

18 Jan 2024 , 10:26 AM

After strong U.S. retail sales data overnight added to growing hopes the Federal Reserve will not rush to lower interest rates, the dollar maintained close to a one-month peak versus key peers on Thursday.

Australia’s currency dropped following statistics that revealed an unanticipated drop in employment.

The U.S. dollar index, which evaluates the currency in relation to a basket of six competitors, saw no movement in the Asian morning trading at 103.36. On Wednesday, it touched 103.69 for the first time since December 13.

Given that it often moves against US long-term rates, which likewise hit a one-month high overnight as dovish Fed bets dwindled, the yen was a clear underperformer. Simultaneously, investors gradually priced out aggressive bets on the Bank of Japan, partly because of the terrible earthquake that struck central Japan on New Year’s Day. Next week, on Monday and Tuesday, the BOJ will meet to discuss policy.

According to CME’s FedWatch Tool, traders have reduced the likelihood of a first Fed rate drop by March to 53.8% from 63.1% on Tuesday.

Though Fed officials, including as Governor Christopher Waller, this week resisted predictions of a swift relaxing of policy, the market is still pricing in a potential 150 basis point cut by year-end.

At 148.135 yen, the dollar was essentially flat last.

The euro, meanwhile, barely moved, trading at $1.08845.

The majority of ECB policymakers, according to ECB President Christine Lagarde, would probably support a summer interest rate reduction, though she emphasized that decisions would rely on the data.

After a spike on Wednesday, statistics revealed that inflation unexpectedly increased in December, bolstering hopes that the Bank of England will cut rates more slowly than its peers, sterling was likewise steady at $1.26765.

The British pound’s 0.31% overnight increase versus the US dollar ended a three-day losing streak and constrained Wednesday’s advances for the dollar index, of which the sterling is a component.

In other news, the Australian dollar declined following statistics that revealed a 65,100 decrease in jobs for December, compared to economists’ expectations of a 17,600 increase.

Before closing the day 0.14% lower at $0.65425, the Aussie fell as far as 0.4% to $0.65255.

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