Stable Dollar Awaits US GDP Verdict: Holds Six-Week High

25 Jan 2024 , 09:41 AM

As investors wait for this week’s GDP and other statistics to determine the direction of U.S. interest rates, the dollar remained relatively stable on Thursday, hovering around a six-week high. Meanwhile, the euro was weaker ahead of the European Central Bank’s policy meeting later in the day.

A measure of the prices businesses charge for their goods dropped to the lowest level in more than three and a half years, suggesting that U.S. business activity picked up in January and that inflation appeared to be abating, according to data released tonight.

The dollar index, which compares the value of the US dollar to six competitors, increased by 0.06% to 103.33 on Tuesday following a 0.2% decline on Tuesday as traders steadied their positions in anticipation of the Federal Reserve’s policy meeting the following week.

According to Reuters polled economists, the U.S. GDP grew by 2% annually in the fourth quarter.

This week’s other U.S. data includes the personal consumption expenditure (PCE) data on Friday, which is the Fed’s preferred indicator of inflation.

The Federal Reserve is anticipated to remain unchanged next week, but Chair Jerome Powell’s remarks will be closely watched to determine whether the US central bank is prepared to begin reducing interest rates.

Bets on early and significant rate reduction have been substantially reduced by traders. According to the CME FedWatch tool, markets are now pricing in a 41% possibility of a cut in March, down from 88% a month ago.

Additionally, traders are factoring in reductions of 130 basis points this year as opposed to 160 bps at the end of 2023.

The offshore Chinese yuan gained 0.06% against the dollar in Asia, reaching $7.1648.

The announcement of a significant reduction in bank reserves by China’s central bank on Wednesday will infuse the banking system with approximately $140 billion in new funds and send a strong signal of support for the country’s faltering economy and collapsing stock markets.

The action is in response to a rumour that surfaced earlier this week about a $278 billion rescue plan intended to assist calm the shattered stock markets.

With traders taking note of the Bank of Japan’s hawkish stance, the Japanese yen lost some of its gains from Wednesday, weakening 0.16% to 147.75 per dollar.

Chief of the Bank of Japan Kazuo Ueda raised hopes that the nation may soon abandon its extremely loose monetary policy on Tuesday by stating that there was a chance of reaching the central bank’s inflation target.

Prior to the ECB policy meeting, where the central bank is anticipated to maintain stable interest rates and the attention will be on remarks from officials, the euro was down 0.07% to $1.0875.

The European Central Bank (ECB) concluded its quickest cycle of rate hikes in September, but it has insisted that it would be premature to even consider a reversal given that price pressures have not completely subsided and important wage negotiations are still ongoing.

This year’s 130 basis point cuts from the ECB are priced in by the markets.

The New Zealand dollar dropped 0.11% to $0.610 and the Australian dollar slid 0.09% to $0.657. At $1.2706, sterling was down 0.13% for the day.

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