Last Week’s Dollar Uptick Despite Growing Fed Rate Cut Bets

The Dollar Index edged higher during the week ended March 29, even as expectations of a rate cut in June strengthened with the release of the PCE-based inflation readings from the U.S. on Friday.

The uptick in the Dollar Index was aided by the U.S. Dollar’s gains against the euro, Swedish Krona and the Swiss Franc that more than offset the greenback’s declines against the British pound, the Japanese Yen and the Canadian Dollar. The euro has an almost 58 percent weight in the Index, followed by the yen with a weight of 14 percent, the pound sterling with a weight of 12 percent and the Canadian Dollar with a weight of 9 percent. The Swedish Krona and the Swiss Franc have weights of close to 4 percent each.

In the last week of the first quarter of 2024 spanning March 25-29, the six-currency Dollar Index edged up 0.06 percent. The Index closed at 104.49 on March 29, versus 104.43 a week earlier. The Index had climbed from the week’s low of 104.01 on Tuesday to the week’s high of 104.73 on Thursday, amidst better-than-expected readings for durable goods orders and fourth quarter GDP as well as hawkish comments from Fed officials.

Renewed rate cut expectations from the Fed triggered by Friday’s PCE inflation data that threw no negative surprises however dragged the Dollar down from the week’s high on Thursday. Acknowledgement on Friday by Jerome Powell that the latest inflation readings matched the Fed’s expectations also weakened the Dollar.

The year-on-year PCE Price Index for February edged up as expected to 2.5 percent, from 2.4 percent in the previous month. The core component thereof also matched market expectations of 2.8 percent. The month-on-month PCE Price Index stood at 0.3 percent, lower than 0.4 percent that the markets had factored in. The core component thereof recorded 0.3 percent that matched market expectations.

The EUR/USD pair slipped 0.11 percent during the week ended March 29 amidst market expectations that priced in an imminent easing by the ECB. The unexpected decline in Germany’s retail sales also weighed on sentiment. From the level of 1.0805 recorded on March 22, the pair declined to 1.0793 by March 29. The week’s trading range was between 1.0865 recorded on Tuesday and 1.0767 recorded on Friday.

The GBP/USD pair however rallied in the past week amidst growing rate cut expectations from the Fed. The GBP/USD pair closed trading at 1.2623 on March 29, a tad below the week’s high of 1.2669 recorded on Tuesday. The pair had dropped to a low of 1.2585 during the week, slipping from the level of 1.2601 recorded a week earlier.

The AUD/USD pair also increased 0.11 percent during the week ended March 29, closing at 0.6521 versus 0.6514 a week earlier. The week’s trading range was between the high of 0.6561 recorded on Tuesday and 0.6485 recorded on Thursday. Data released during the week had shown a less-than-expected increase in consumer price inflation as well as retail sales.

Strong speculation about regulatory intervention helped the yen rebound against the greenback during the week ended March 29. The USD/JPY pair closed the week at 151.31, versus the level of 151.42 recorded a week earlier. The pair had earlier whipsawed on Wednesday, between 151.98 and 151.03 that dragged the yen to a 34-year low. The yen’s weakness came amidst Bank of Japan’s Summary of opinions released on Wednesday that showed an inclination to go slow on future rate hikes. BoJ emphasized its cautious stance in the case of terminating the negative interest rate policy, as it felt that Japan’s economy was not in a state where rapid policy interest rate hikes were necessary.

Ahead of the release of the minutes of the meeting of the Reserve Bank of Australia, the AUD/USD pair is currently trading at 0.6518. The USD/JPY is at 151.38 amidst fears of a regulatory intervention in the currency market. Amidst renewed rate expectations, the Dollar Index is hovering near 104.59. The EUR/USD pair is at 1.0783 whereas the GBP/USD pair is at 1.2611.

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