Dollar’s Tepid Show Last Week

It was a lukewarm show by the Dollar during the week ended January 26, reflected in a minor uptick in the Dollar Index. The Dollar gained against the euro, the Australian Dollar and the Japanese yen but edged lower against the British pound amidst no big negative surprises in the keenly awaited PCE-based inflation readings from the U.S.

The Dollar Index, a measure of the Dollar’s strength against a basket of 6 currencies, which had closed at 103.29 on January 19, increased to 103.43 by January 26, recording a rise of 0.14 percent. The Index traded between a high of 103.82 touched on Tuesday and the low of 102.77 recorded on Wednesday.

Data released on Thursday revealed the U.S. economy expanded at an annualized 3.3 percent in the fourth quarter, beating forecasts of a 2-percent rise and previous reading of 4.9 percent. Durable Goods orders recorded a flat reading, missing market expectations of a 1.1 percent increase and the 5.5 percent rise seen in November. The number of Americans filing for unemployment benefits rose to 214 thousand in the week ended January 20, versus 189 thousand a week earlier and expectations of 200 thousand.

The much-awaited PCE readings released on Friday provided no much negative surprises. Headline Annual PCE Price Index was as expected, steady at 2.6 percent. The core component, which was seen edging down to 3 percent, from 3.2 percent earlier, dropped more than expected to 2.9 percent. As expected, the month-on-month PCE price Index recorded 0.2 percent versus -0.1 percent in the previous month. The core component too moved on expected lines, edging up to 0.2 percent from 0.1 percent in the previous month.

The Dollar’s mild gains during the week coincided with a minor uptick in rate cut expectations. The CME FedWatch tool showed rate cut expectations for the January review rising marginally to 3.1 percent on January 26, from 2.1 percent a week earlier. The target probabilities assigned to rate cuts in the March review also edged up to 47.6 on January 26, from 47.2 percent a week earlier. Likewise, the rate cut expectations for the May review increased to 88 percent on January 26, from 84.8 percent a week earlier.

Despite a hawkish pause by the European Central Bank, the Euro slipped against the U.S. Dollar in the week ended January 26. The European Central Bank, in its decision on Thursday, kept rates steady as well as pledged to keep interest rates restrictive for as long as necessary to combat inflation. The ECB reiterated its commitment to fight inflation despite the risk of recession as well as signs of disinflation. However, the EUR/USD pair slipped to 1.0852 from 1.0897 a week earlier. The pair touched a high of 1.0933 on Wednesday and a low of 1.0812 on Friday.

The pound edged up against the U.S. Dollar during the week spanning January 19 to 26. The GBP/USD pair closed at 1.2702 on January 19 versus 1.2700 a week earlier. The sterling ranged between the low of $1.2648 on Tuesday and the high of $1.2776 on Wednesday. Data released during the week had showed an uptick in both manufacturing and service PMI readings for January.

The Australian Dollar slipped 0.35 percent against the U.S. Dollar during the week ended January 26. The AUD/USD pair ranged between the low of 0.6550 recorded on Tuesday and the high of 0.6622 recorded on Wednesday. Australia’s NAB business confidence index released on Monday showed a climb to -1 in December, from a downwardly revised -8 in the prior month.

In a week that saw Bank of Japan’s much-awaited monetary policy review, the yen remained strong against the U.S. dollar. The USD/JPY pair closed at 148.16, not far from the 148.14 level a week earlier. The pair however ranged between a high of 148.73 recorded on Tuesday and a low of 146.65 recorded on Wednesday.

The Federal Reserve is due to announce its next interest review on Wednesday. The Bank of England’s decision is due on Thursday. Amidst the anxiety and the uncertainty, the Dollar Index has increased to 103.66 while the GBP/USD pair has slipped to 1.2694. The EUR/USD pair has also slipped to 1.0819. The AUD/USD pair has increased to 0.6600 ahead of the inflation readings due on Tuesday. The USD/JPY pair is trading at 148.04.

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