Dollar steady in 2024 as data takes the spotlight: Investors await clues for next move

2 Jan 2024 , 09:44 AM

On the first trading day of the year, the dollar remained stable as investors assessed the possibility of sharp interest rate reductions from the Federal Reserve in 2024 and examined this week’s economic data for hints about the central bank’s upcoming actions.

The dollar index, which compares the value of the US dollar against six competitors, lost 2% in 2023, ending a two-year trend of rises. As of Tuesday, it was up 0.049% to 101.43.

According to the CME FedWatch tool, markets are currently pricing in an 86% chance of rate decreases to begin in March, with over 150 basis points (bps) of easing expected throughout the year.

The emphasis now shifts to a plethora of economic data that is anticipated this week, such as nonfarm payrolls and job opening data. Thursday’s release of the minutes from the most recent Fed meeting in December is expected to shed light on the central bankers’ considerations for rate reductions this year.

During its policy meeting in December, the Fed surprised everyone by expressing a dovish outlook and projecting 75 basis points of rate reductions by 2024.

In contrast, the European Central Bank (ECB) and the Bank of England (BoE), two other significant central banks, reaffirmed their intention to keep interest rates higher for an extended period of time.

Nevertheless, markets are pricing in 158 basis points of rate reduction from the ECB this year and 144 basis points from the BoE in 2024.

The euro was slightly lower at $1.1036, down 0.07% from the five-month high of $1.11395 it reached the previous week. The single currency saw its first annual increase since 2020 last year, rising by 3%.

At $1.2726, sterling was up 0.02% for the day. With a 5% rise last year, it recorded its best annual performance since 2017.

The Japanese yen, which fell 7% versus the dollar in 2023, began the year weaker, falling 0.24% to 141.20 per dollar.

Even though the Bank of Japan is sticking to its dovish stance, the main focus is on whether the central bank will stop offering negative interest rates in 2024. Due to the holiday, Tokyo markets are closed, resulting in low traffic during the day.

At least six people were killed in a strong earthquake that struck central Japan on New Year’s Day, according to early reports from officials on Tuesday. Bodies were being removed from the debris of collapsed buildings.

The Australian dollar, which finished 2023 mostly unchanged, was slightly moved at $0.6813 elsewhere. At $0.6314, the New Zealand dollar had decreased by 0.08%.

For feedback and suggestions, write to us at [e-mail]