Jan 9, 2024: The U.S. dollar showed a slight decrease in early European trading on Friday, but it was on course for a second consecutive weekly gain. Renewed uncertainties regarding early interest rate cuts by the Federal Reserve contributed to the dollar’s strength, while the British pound faced headwinds from disappointing retail sales.
At 04:00 ET (09:00 GMT), the Dollar Index, measuring the greenback against a basket of six other currencies, was down 0.1% at 103.212. Despite this minor decline, the dollar had registered an increase of over 1% for the week.
The U.S. economy’s resilience has tempered expectations of an imminent rate-cutting cycle by the Federal Reserve, originally anticipated in the first quarter of the year. Stronger-than-expected U.S. retail sales data earlier in the week, along with Thursday’s report revealing a decrease in new jobless claims to the lowest level in nearly 1-1/2 years, contributed to the dollar’s positive momentum.
Market sentiment is currently anchored to the possibility of a rate cut in March, with approximately 50%-60% probability, as reflected in current pricing. However, analysts at ING expressed skepticism about the Fed implementing a rate cut in two months given the prevailing economic conditions. The next Fed meeting is scheduled at the end of the month, and with no significant U.S. data releases before then, the analysts see no compelling bearish narrative in the near term. The only key data release before the meeting is the fourth-quarter GDP figures next week, and unless there are major surprises, there may not be a strong bearish outlook for the next week.