Amidst Rate Cut Uncertainty, Dollar Edged Lower Last Week

It was a mixed performance for the U.S. Dollar during the week ended April 26 amidst economic data that revealed growing uncertainties about the Fed’s potential easing cycle and a volatile geopolitical situation in the Middle East. The U.S. Dollar slipped against the euro, the British Pound and the Australian Dollar but firmed up against the beleaguered Japanese Yen. The Dollar Index which measures the Dollar’s strength against a basket of 6 currencies edged lower.

From the level of 106.12 on April 19, the Dollar Index edged down 0.03 percent in a week’s time. The Index which had touched a weekly high of 106.39 on Monday dropped to the weekly low of 105.42 by Friday. The Index eventually recovered and closed the week at 106.09.

Data released on Tuesday showed an unexpected decline in both Manufacturing PMI as well as Service PMI for April in the U.S. Data released on Thursday showed first quarter U.S. GDP growth declining to 1.6 percent from 3.4 percent earlier and missing market expectations of a growth of 2.5 percent.

The acceleration in the price index for personal consumption expenditures by an annualized 3.4 percent in the first quarter of 2024 from a 1.8 percent increase in the previous quarter however triggered rate cut uncertainty. Initial jobless claims that unexpectedly declined to 207 thousand during the week ended April 20 from 212 thousand a week earlier, also revealed the strength of the labor market, dampening rate cut expectations. Markets had expected the reading to jump to 214 thousand.

Data released by the U.S. Bureau of Economic Analysis on Friday showed year-on-year PCE Price Index rising 2.7 percent in March versus 2.5 percent in the previous month. Markets had expected it to rise to only 2.6 percent. The core component unexpectedly remained steady at 2.8 percent despite markets expecting a decline to 2.6 percent. The month-on-month PCE Price Index as well as its core component, both remained steady at 0.3 percent as widely expected.

Amidst the dollar’s weakness triggered by softer-than expected PMI and GDP readings, the EUR/USD pair rallied 0.36 percent during the week ended April 26. The pair climbed from the low of 1.0623 recorded on Monday to a high of 1.0754 on Friday. The pair eventually closed at 1.0692, versus 1.0654 a week earlier.

The pound too surged, albeit close to a percent during the week ended April 26 amidst the greenback’s weakness. The GBP/USD pair which had closed at 1.2371 on April 19 gained 0.95 percent during the week ended April 26 to close at 1.2489. The weekly trading range was wider, between a low of 1.2298 recorded on Monday and a high of 1.2542 recorded on Friday.

Amidst a higher-than-expected CPI reading, the Australian Dollar jumped 1.81 percent against the U.S. Dollar during the week ended April 26. From the level of 0.6417 recorded on April 19, the pair rose to close at 0.6533. During the week, the pair oscillated between a low of 0.6409 recorded Monday and the high of 0.6556 recorded on Friday.

The U.S. Dollar however rallied against the Japanese Yen during the week ended April 26, in the backdrop of a dovish monetary policy outlook by the Bank of Japan. BoJ held rates steady while forecasting a spike in inflation and weakness in GDP, casting doubts on the headroom available to the Bank of Japan to raise rates further. The USD/JPY pair closed the week at 158.33 versus 154.63 a week earlier, recording an impressive rally of 2.4 percent. The pair ranged between the low of 154.46 recorded on Monday and the high of 158.45 recorded on Friday.

The Fed’s interest rate decision is due on Wednesday. Markets overwhelmingly expect the Fed to keep rates on hold and oblige with a policy pivot only by September. The Dollar Index is in this backdrop hovering near 105.80. The EUR/USD pair has increased to 1.0701 whereas the GBP/USD pair has gone up to 1.2523. The AUD/USD pair is at 0.6555.

The USD/JPY pair which surged past the 160 level is currently at 156.47 amidst suspected foreign exchange intervention by Japanese Ministry of Finance.

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