Mar 1 2024: In early European trade on Friday, the U.S. dollar showcased resilience, maintaining most of its overnight gains following the release of highly anticipated U.S. inflation data, while the euro displayed some upward momentum.
At 04:00 ET (09:00 GMT), the Dollar Index, which gauges the greenback against a basket of six other major currencies, traded relatively flat at 104.107, after a volatile overnight session.
Resilient U.S. Dollar:
The PCE price index, the Federal Reserve’s preferred inflation measure, moderated in January according to Thursday’s data release, but still remained significantly above the central bank’s annual inflation target. This came after a series of robust U.S. economic indicators indicating persistent price pressures, leading the market to discount the possibility of a rate cut as early as this month.
June is now considered the probable starting point for the Fed’s cycle of rate cuts, with traders foreseeing approximately 75 basis points of easing throughout the year.
Analysts at ING remarked in a note, “The concept of resilient U.S. inflation and economic activity data has been fully assimilated now. Investors are content with three 25-basis-point cuts priced in by December, as there isn’t enough data to turn more dovish at present. Similarly, a rate cut before June appears improbable. All of this translates into a resilient dollar.”
Euro Makes Gains Ahead of Eurozone CPI:
In Europe, EUR/USD edged up by 0.1% to 1.0813, ahead of the release of the eurozone CPI figure for February, anticipated to reveal another slowdown in inflation in the region.
Thursday’s data showed that consumer prices declined at a slower pace than anticipated in France but faster than expected in Germany. Economists are predicting an annual reading of 2.5% for February, down from January’s 2.8%.
“Any deviation from expectations could prompt short-term fluctuations in eurozone rates and the euro, but is unlikely to significantly alter the narrative expected to be reiterated by Christine Lagarde and the Governing Council next week,” ING added.
The European Central Bank convenes next week, and while no policy change is anticipated, the bank might hint at rate cuts later in the year.
Other Market Movements:
GBP/USD was up 0.1% at 1.2635, following data from mortgage lender Nationwide indicating a rise in British house prices in February in annual terms, the first such increase in over a year.
In Asia, USD/CNY rose by 0.2% to 7.1989, with the yuan weakening after official PMI data showed China’s manufacturing sector shrinking for the fifth consecutive month in February.
USD/JPY climbed by 0.5% to 150.66, with the yen surrendering all its gains from Thursday and trading back above the 150 level, as the possibility of prolonged higher U.S. rates overshadowed any initial rate hikes by the Bank of Japan.
