USD Performance Gauge Rises, Touching New Peaks in Currency Market

The dollar hovered close to its one-month peak against major currencies on Thursday, following robust U.S. retail sales data that bolstered expectations that the Federal Reserve (the U.S. central bank) would not hasten interest rate cuts.

The U.S. dollar index, which measures the performance of the American currency against a basket of six competing currencies, dipped slightly to 103.29 in Asian trade post-midday.

The dollar index had reached 103.69 on Wednesday for the first time since December 13th.

According to data from CME’s FedWatch, traders have reduced the likelihood of the US Federal Reserve cutting interest rates for the first time in March, bringing it down to 61% from Tuesday’s probability of 65.1%.

The market continues to anticipate potential rate cuts of up to 150 basis points by the end of the year, despite Federal Reserve officials, including Governor Christopher Waller, retreating this week from expectations of rapid monetary policy easing.

Tony Sycamore, an analyst at IG stated, “Pricing in the American interest rate market now appears to be more reasonable. The dollar has recovered sufficiently in 2024 for the time being.”

The dollar climbed to 148.525 yen overnight for the first time since the end of November. However, it fell by 0.08% to 148.04 yen in the latest trading during the day.

The value has bounced back from its lowest level in five weeks, which was $1.08445, recorded on Wednesday.

This recovery was bolstered by remarks shared by Christine Lagarde, the President of the European Central Bank, to Bloomberg, indicating that it is likely that there will be majority support among European Central Bank officials for a cut in interest rates during the summer.

This anticipated reduction in rates is projected to happen later than the market’s expectations of a cut in the spring.

The British pound settled at 1.26815 dollars following a rise on Wednesday, after data unexpectedly showed an acceleration in inflation for December, reinforcing expectations that the Bank of England might slow down in cutting interest rates compared to its counterparts.

The British currency concluded its 0.31% increase overnight, halting a three-day decline against the dollar. This limited the gains made by the dollar index on Wednesday, which includes the pound sterling among its competing currencies in the basket.

The Australian dollar stabilized at 0.65545 US dollars, recovering from significant losses reaching 0.04% down to 0.65255 US dollars earlier on. This rebound followed unexpected employment declines in December, which reinforced the belief that interest rates may have peaked in the country.