Dollar Tumbled Last Week Amidst Powell’s Rate Cut Assurances

The Fed’s growing confidence that inflation was moving sustainably at the 2 percent level and Jerome Powell’s ample rate cut hints in the Congressional testimony sent the Dollar plunging in the last week. The U.S. Dollar plunged against the euro, the British Pound, the Australian Dollar as well as the Japanese Yen during the week ended March 8, 2024. The Dollar Index also recorded heavy losses.

The Dollar Index, a measure of the Dollar’s strength against a basket of 6 currencies dropped 1.1 percent during the week ended March 8, 2024. From the level of 103.86 recorded at close on March 1, the index descended steadily, to close at 102.71. The Index recorded the week’s high of 103.96 on Monday and the week’s low of 102.36 on Friday.

Data released on Tuesday showed a slightly slower growth in the services sector. The ISM Services PMI dropped to 52.6 in February, from a four-month high of 53.4 in January and below forecasts of 53.

Despite expectations that the Fed Chair would in his Congressional testimony reiterate patience before embarking on rate cuts, Jerome Powell reinforced expectations that rate cuts were indeed coming later in the year. His concerns about the dangers of delaying rate cuts, also exacerbated the greenback’s decline.

The monthly jobs data released from the U.S. on Friday showed the unemployment rate rising to 3.9 percent, from 3.7 percent, touching the highest level since January 2022. However, the additions to non-farm payrolls in February was 275 thousand, surpassing market expectations of an addition of 200 thousand. The mixed job market update added to uncertainty about the Fed’s potential rate action and capped the Dollar’s losses.

The dollar’s weakness lifted the EUR/USD pair to a high of 1.0982 on Friday from the week’s low of 1.0838 recorded on Monday. Better-than-expected trade data from Germany also boosted sentiment for the Euro. The pair added 0.92 percent during the week, closing at 1.0937 on Friday, versus 1.0837 a week earlier. The European Central Bank had on Thursday held rates steady as well as simultaneously acknowledged the faster-than-expected easing in inflation, limiting gains for the pair.

The GBP/USD pair jumped 1.6 percent during the week ended March 8, lifting the sterling to $1.2857, from $1.2650 a week earlier. The pair climbed from the low of 1.2650 touched on Monday to the high of 1.2895 recorded on Friday amidst no major surprises in the Spring Budget announcements. Market perception that Bank of England would be slow in cutting interest rates also supported the sterling.

The Australian Dollar too jumped 1.59 percent against the U.S. Dollar during the week ended March 8. The pair jumped from the low of 0.6477 recorded on Tuesday to 0.6669 on Friday, but eventually closed at 0.6627. The pair was at 0.6526 a week earlier. The Australian economy recording the ninth straight period of growth in the fourth quarter of 2023 and higher-than-expected trade surplus update from trading partner China helped lift the AUD/USD pair.

The USD/JPY pair slipped more than 2 percent during the past week amidst the dollar’s weakness and speculation that the Bank of Japan could soon end the negative interest rates regime. The pair dropped to 147.07, from 150.11 a week earlier. The weekly trading range was a bit wider, between a high of 150.65 recorded on Monday and 146.48 recorded on Friday.

Amidst renewed rate cut optimism post the Fed Chair’s Congressional testimony, the CME FedWatch tool on Friday showed rate cut expectations at 24 percent for the FOMC review in May and at 73 percent for the Fed review in June. Despite markets increasing the expectations of a rate cut by the Fed, all eyes are on the U.S. CPI readings for February due on Tuesday. The headline annual inflation is seen steady whereas its core component is seen declining.

The headline month-on-month reading is seen edging up whereas its core component is seen edging lower. Amidst the expectations, The Dollar Index is currently hovering near 102.88. The EUR/USD pair has decreased to 1.0920. Ahead of the release of the national unemployment data, the GBP/USD pair has also decreased to 1.2820. The AUD/USD pair is at 0.6602 whereas the USD/JPY pair has edged down to 147.05.

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