Strong US Economy Lifts Dollar for Second Week

19 Jan 2024 , 10:21 AM

On Friday, the US dollar positioned itself for a second consecutive weekly rise, buoyed by indications of the country’s economic resilience and the reluctance of central bankers to reduce interest rates. The Australian and New Zealand dollars are expected to post weekly increases of 1.7% and 2.1%, respectively, marking their highest gains since November and June. The market is now pricing in a 57% possibility of a US rate cut in March, down from 75% a week earlier.

The dollar index rose by 0.9% to 103.4 yen this week, marking a 5% increase against the Japanese yen in 2024, as concerns over a potential rate hike by the Bank of Japan (BOJ) diminished. Japan’s core inflation rate dropped to 2.3% in the year ending December, the lowest annual rate since June 2022, supporting officials’ wait-and-see strategy.

Currency values saw little movement in the early Asia session on Friday, with the euro down 0.7% on the week at $1.0878 and the pound down 0.3% at $1.2708. Iron ore price stability provided some support for the Aussie, which increased 0.1% to $0.6578, while the kiwi remained at $0.6118.

The pressure on rate-cut expectations intensified after US labor market data showed a drop in weekly jobless claims to the lowest level in almost one and a half years. Short-term interest rate expectations, tracked by two-year Treasury rates, rose by 22 basis points to 4.3587% this week.

Positive data, including stronger-than-expected December retail sales, and Federal Reserve Governor Christopher Waller’s comments supporting a cautious approach to rate adjustments contributed to the easing of rate-cut bets. The euro’s decline against the dollar was tempered by a hawkish stance from European central bankers.

A retreat in bets on a Bank of England rate cut followed an unexpected increase in British inflation, supporting the pound. Bitcoin’s price dropped to a five-week low of $40,484 after the US approved spot bitcoin exchange-traded funds, with investors cashing out after driving cryptocurrency prices higher in 2023 on expectations of large investors entering the market.

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