Between February 5th and 9th, the US Dollar maintained a solid performance, buoyed by a Federal Reserve statement that pointed towards diminishing prospects of immediate interest rate cuts. This resulted in a slight increase in the Dollar Index, which measures the US Dollar's strength compared to a group of six other currencies.
The U.S. Dollar demonstrated growth against the euro, British pound, and Japanese Yen but failed to outperform the Australian Dollar. By the end of the week, the Dollar Index exhibited a mild increase of 0.18 percent, closing at 104.11 compared to 103.92 in the previous week.
Strong data supporting the potency of the U.S. economy was a main factor driving the dollar's performance. This included an increase in the services PMI to 53.4 in January from 50.5 in December, which surpassed market expectations of 52. This positive news following a strong jobs report raised questions about the need for early interest rate cuts, thereby supporting the dollar's value.
An additional boost came from labor market data, revealing a reduction in unemployment benefits claims to 218 thousand for the week ending February 3, down from 227 thousand in the previous week. Comments by Fed Chair Jerome Powell underscoring the consensus against premature rate cuts, in combination with a rise in U.S. bond yields, further supported the currency.
The performance of currency pairs also highlighted the relative strength of the dollar. The EUR/USD pair declined due to the weakening of the Eurozone economy, exemplified by declination in German exports, contraction within the service sector, and a drop in retail sales. Similarly, the GBP/USD also demonstrated a 0.09 percent slip during this one-week period due to mixed UK data, including a rise in Services PMI and lower than expected retail sales growth.
The Australian Dollar was an exception, demonstrating a 0.17 percent rally against the U.S. Dollar, primarily attributable to the Reserve Bank of Australia's decision to maintain cash rates at 4.35 percent.
Finally, the USD/JPY demonstrated a rise, thanks to dovish comments from the Bank of Japan's Deputy Governor Shinichi Uchida, alluding to the unlikelihood of aggressive tightening post exiting from negative interest rate policy.
At present, market anticipation is looking forward the U.S. January consumer price inflation figures, which are expected to show a slowdown. As we await this news, the Dollar Index has increased slightly to 104.12. Considering this, the EUR/USD pair has fallen to 1.0773 and the GBP/USD pair is at 1.2628. Additionally, the trajectory of the pound will be affected by upcoming data on unemployment, inflation and GDP from the UK, while the AUD/USD pair is currently at 0.6536 due to suggestions of growing disinflation in China. The USD/JPY pair is currently near 149.38 ahead of Japan's fourth quarter GDP figures.
