The dollar maintains its strength as macroeconomic data suggests a potential future Fed rate cut

16 Nov 2023 , 09:40 AM

After two erratic days marked by steep drops and a rebound, the dollar held its footing early on Thursday as traders interpreted incoming economic data as indicating the Federal Reserve will hold off on raising interest rates for a longer period of time.

A drop in regional equities caused the risk-sensitive Australian and New Zealand dollars to plummet.

The dollar saw minimal movement at $1.08425 per euro and fell 0.15% to 151.15 yen on Wednesday, following its worst losses against key peers in a year.

The dollar index, which compares the US dollar to the euro, yen, and four other currencies, increased by 0.11% to 104.43. On Wednesday, it increased by 0.31% after falling by 1.51% the day before.

Better-than-expected retail sales data and additional indications of a slowing of inflation supported the dollar and contributed to the narrative of an economic ‘soft landing,’ which would give the Fed more time before reducing rates.

According to the CME Group’s FedWatch Tool, traders reduced the probability of a first reduction by March from better than 1-in-3 to less than 1-in-4 a day earlier.

In other news, the New Zealand dollar dropped 0.5% to $0.5993 while the Australian dollar fell 0.29% to $0.64905.

A robust increase in employment did not help Australia’s currency, as traders focused on the fact that increases came primarily from part-time jobs, even as the unemployment rate increased.

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