In the lead-up to the release of crucial inflation data, the U.S. dollar maintained its strength on Friday, building on overnight gains. Traders closely assessed the unexpected positive growth in domestic GDP, pondering its implications for the Federal Reserve’s future rate decisions.
On the European front, the euro faced headwinds following the European Central Bank’s (ECB) recent monetary policy meeting, where interest rates were kept at a record-high of 4%.
In the United States, the official advance GDP estimate data for the last quarter revealed a 3.3% annualized growth rate, surpassing the anticipated 2%. Additionally, inflationary pressures were observed to be easing.
Charu Chanana, Head of Currency Strategy at Saxo in Singapore, remarked, “US GDP data re-affirmed soft landing hopes for the US economy, but the bond market focused more on the disinflation component of the report which pushed yields lower. The dollar, however, held up.”
The dollar index, gauging the greenback against major currencies, maintained a position around 103.52, showing a 2% gain year-to-date. Concurrently, U.S. Treasury yields saw a decline, with the 10-year yield down at 4.11% in the Asian morning.
Markets signaled a 50% probability of a rate cut in March, a decrease from the 75.6% recorded a month ago, according to the CME FedWatch tool. Chanana suggested, “Pressure on yields and the dollar could increase if December PCE comes in softer than expectations today.”
The euro, in response to the ECB’s decision to keep rates unchanged, traded at $1.0841, rebounding slightly from a six-week low of $1.08215 reached on Thursday. Traders speculated on a potential rate cut in April, interpreting the ECB’s stance as growing comfort with the inflation outlook.
Sterling consolidated around $1.2703, awaiting the Bank of England’s decision on interest rates scheduled for next Thursday.
In the Asia-Pacific region, the yen hovered around 147.56 per dollar, remaining relatively stable after a slight decline. The Bank of Japan’s more hawkish tone earlier in the week impacted the yen’s performance.
Data from Japan showed core inflation in Tokyo slowing to 1.6% in January, below the central bank’s 2% target. Analysts, such as Marcel Thieliant, Head of Asia-Pacific at Capital Market, expressed concerns about the Bank of Japan’s commitment to ending negative interest rates.
Looking at cryptocurrencies, bitcoin experienced a marginal 0.1% decline, settling at $39,858.20.
