Mar 8 2024: In early European trading on Friday, the U.S. dollar saw a modest uptick, though it remained on track for a significant weekly decline following indications from Federal Reserve Chair Jerome Powell signaling potential lower interest rates in the coming months. Meanwhile, the euro pulled back from recent highs subsequent to the European Central Bank meeting.
At 04:15 ET (09:15 GMT), the Dollar Index, which measures the dollar against a basket of six other major currencies, was trading slightly higher at 102.787. However, it is poised for a weekly loss of approximately 1%, marking its most substantial decline in nearly three months.
Following Jerome Powell’s comments during his testimony before the Senate Banking Committee, where he hinted at a possible adjustment in monetary policy to prevent economic recession, the dollar is showing signs of recovery after facing significant losses in the previous session.
“We are waiting to become more confident that inflation is moving sustainably down to 2%,” Powell stated. “When we do get that confidence, and we’re not far from it, it will be appropriate to begin to dial back the level of restriction so that we don’t drive the economy into recession.”
Market interpretation suggests that the Federal Reserve might move, possibly in the summer, barring an exceptionally strong jobs report later in the session.
Analysts at ING noted, “The payrolls will determine the direction of FX markets today. Following Powell’s testimony, we suspect markets will not be too reluctant to price in more cuts.”
In Europe, the EUR/USD pair edged 0.1% lower to 1.0938, retreating slightly after reaching a nearly two-month high earlier in the day ahead of the latest eurozone quarterly growth data.
German industrial production figures for January exceeded expectations, showing a 1.0% increase from the previous month, which was higher than the anticipated 0.6% rise. The European Central Bank left its benchmark rate unchanged at 4% and hinted at a potential cut in June.
GBP/USD traded 0.1% higher at 1.2820, benefitting from dollar weakness, with sterling advancing over 1% for the week and hitting a new high for 2024 earlier in the session.
In Asia, USD/JPY traded 0.2% lower at 147.76, with the yen posting strong gains of over 1.5% for the week, its most significant weekly rise since December. Traders are anticipating the Bank of Japan potentially ending negative interest rates soon, in contrast to the anticipated trajectory of U.S. rates.
