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Investing.com – The US dollar fell in early European trade on Friday, but was on track for a second straight week of weekly gains amid renewed doubts about early rate cuts by the Federal Reserve, while weak retail sales hurt sterling.
At 14:50 Riyadh time, the dollar index, which tracks the US currency against a basket of six other currencies, was down 0.18% at 103.122, but was up more than 1% so far this week.
Resilient US activity boosts the dollar
Signs of resilience in the US economy have hurt expectations that the US central bank will begin an interest rate cutting cycle as early as the first quarter of this year.
The US economy came in stronger than expected earlier in the week, and data on Thursday showed that the number of Americans applying for unemployment benefits fell last week to the lowest level in about a year and a half.
“Markets remain pegged to the possibility of a March rate cut, which is now priced at 50% to 60% probability, but we are really struggling to imagine the Fed cutting within two months in the future,” analysts at ING said in a note. under the current economic backdrop.
The Fed next meets at the end of this month, and “the only major data released in the US before that is the Q4 numbers next week, and barring any huge surprises, we don’t expect any big surprises in the data.” “There is a compelling bearish story for the next week or so,” ING added.
Weak UK retail sales hurt sterling
In Europe, the currency pair fell 0.3% to 1.2670, with the British pound taking a hit after a 3.2% decline in the UK in December, the largest drop in sales since January 2021, raising the risk of the British economy entering a recession late in the year. the past.
This illustrates the difficult position the Bank of England finds itself in, with data released earlier this week showing it unexpectedly accelerated in December, meaning the central bank will be slower to cut interest rates than its peers.
“This means that further repricing in the Bank of England’s interest rate forecasts will require markets to be convinced that December’s CPI surprise was just a blip,” ING added.
The currency pair traded largely unchanged at 1.0874, with traders awaiting comments from the European Central Bank president in Davos later in the session.
Lagarde downplayed expectations for early interest rate cuts earlier in the week, and they appear unlikely to ease today.
The yen is heading for a huge weekly loss
In Asia, the currency pair fell to 148.11, with the yen expected to lose more than 2% this week.
Data on Friday showed that Japanese consumer price inflation fell to its lowest levels since June 2022 in December, leaving the Bank of Japan largely to maintain its ultra-cautious policy when it meets next week.
The currency pair traded slightly lower at 7.1944, with the yuan remaining weak after data earlier this week showed the world’s second-largest economy grew less than expected in the fourth quarter.
2024-01-19 11:55:00
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