During the week ending March 29, the Dollar Index saw a modest increase despite growing expectations of a June interest rate reduction, heightened by the release of US Personal Consumption Expenditure (PCE) based inflation data on Friday.
The Dollar Index's rise was primarily driven by the U.S. Dollar's gains against the euro, Swedish Krona, and the Swiss Franc, which overshadowed the dollar's decreases against the British pound, Japanese Yen, and Canadian Dollar. The exchange rates of these six currencies significantly influence the Dollar Index, with the euro (58%), yen (14%), pound (12%), and Canadian Dollar (9%) holding the greatest economic weight. The Swedish Krona and Swiss Franc each have nearly a 4% weight.
In the final week of the first quarter of 2024, from March 25-29, the Dollar Index rose by 0.06%. The index ended the week at 104.49, slightly up from 104.43 one week before. The index advanced from the week's low of 104.01 on Tuesday to 104.73 on Thursday, stimulated by stronger than anticipated data for durable goods orders and fourth-quarter GDP, along with bullish statements from Federal Reserve officials.
However, the reintroduction of rate cut expectations, spurred by the PCE inflation data released on Friday, pulled the dollar down from its high point. Federal Reserve Chairman Jerome Powell's confirmation that the latest inflation figures aligned with the Federal Reserve's projections further weakened the dollar.
For February, the annual PCE Price Index rose as predicted to 2.5%, up from 2.4% in January. The core element of the index also matched market forecasts of 2.8%. The monthly PCE Price Index was at 0.3%, lower than the anticipated 0.4%. Its core component matched the market's expectation of 0.3%.
During the final week of March, the EUR/USD pairing declined by 0.11% as the market expected the European Central Bank to ease its policy soon. A drop in retail sales in Germany added to the negative outlook. The EUR/USD pair dropped from 1.0805 on March 22 to 1.0793 by March 29.
Meanwhile, the AUD/USD pair increased by 0.11% during the final week of March, ending at 0.6521, which was a slight increase from 0.6514 a week earlier. The weekly trade range fluctuated between the high of 0.6561 recorded on Tuesday and 0.6485 recorded on Thursday. Less-than-expected increases in retail sales and consumer price inflation were reported during the week.
Strong speculation about regulatory measures led to a rebound of the yen against the dollar during the week ending March 29. The USD/JPY pair ended the week at 151.31, lower than the previous week's level of 151.42. The fluctuation came in the wake of a summary from the Bank of Japan suggesting a cautious approach towards future rate hikes. The bank cited concerns over the economic state of Japan as the reason for not considering massive policy interest rate hikes.
Just ahead of the release of the Reserve Bank of Australia's meeting minutes, the AUD/USD pair is trading at 0.6518. At the same time, the USD/JPY stands at 151.38 amid fears of regulatory intervention in the currency market. With revived rate expectations, the Dollar Index hovers just above 104.59. The respective states of the EUR/USD and the GBP/USD are 1.0783 and 1.2611.
