The uncertain monetary policy outlook, influenced by mixed comments in the FOMC Minutes, helped the U.S. dollar maintain its strength during the week of May 20 to May 24. Throughout this period, the greenback strengthened against the euro, the Australian dollar, and the Japanese yen, while it weakened against the British pound. The 6-currency Dollar Index also saw an increase.
During the week ending May 24, the U.S. dollar's strength was evident against a basket of six major currencies: the euro, British pound, Japanese yen, Canadian dollar, Swedish kroner, and Swiss franc. The Dollar Index (DXY) recorded a 0.27% increase, closing at 104.72 on May 24, up from 104.44 the previous week.
The Fed Minutes released on Wednesday highlighted concerns regarding whether the current monetary policy was sufficiently restrictive and whether further tightening was necessary. FOMC participants generally felt that the monetary policy was appropriately positioned, but comments from Fed officials during the week added to speculations that interest rates might remain elevated for an extended period. Consequently, the index fluctuated between a low of 104.39 on Monday and a high of 105.12 on Friday.
The euro slipped by 0.23% against the U.S. dollar during the week ending May 24, amid dovish comments from ECB officials. The EUR/USD pair declined from 1.0870 on May 17 to 1.0845 on May 24, with a weekly high of 1.0885 on Monday and a low of 1.0805 on Friday.
In contrast, the greenback retreated against the sterling in the same period. The GBP/USD pair climbed 0.32%, advancing to 1.2740 from 1.2699 a week earlier, in response to a smaller-than-expected decline in inflation. Headline inflation in April dropped to 2.3% from 3.2% in March, contrary to market expectations of a fall to 2.1%. The weekly trading range extended from a high of 1.2763 on Wednesday to a low of 1.2678 on Friday.
The Australian dollar fell by nearly a percent against the U.S. dollar last week, despite the Reserve Bank of Australia's minutes revealing considerations for raising interest rates. The AUD/USD pair decreased from 0.6692 on May 17 to 0.6627 on May 24, marking a weekly loss of 0.97%. The pair saw a weekly high of 0.6711 on Monday and a low of 0.6591 on Friday.
The U.S. dollar gained 0.86% against the Japanese yen during the week ending May 24, raising the USD/JPY pair to 156.99 from 155.65 a week earlier. A greater-than-expected decline in consumer price inflation raised concerns about the Bank of Japan's capacity to increase interest rates. The USD/JPY pair fluctuated between a low of 155.49 on Monday and a high of 157.20 on Thursday.
Looking ahead, major economic data releases are expected to influence currency market sentiment. Key upcoming releases include consumer confidence readings from Japan and Germany, inflation updates from Australia, Germany, France, and the Euro Area, PMI updates from China, and GDP readings from the U.S. and Canada. However, the market's primary focus will be on the PCE-based inflation readings due from the U.S. on Friday.
In anticipation of these developments, the DXY has declined to 104.39. The EUR/USD pair has increased to 1.0879, while the GBP/USD pair has firmed up to 1.2798. The AUD/USD pair has risen to 0.6677. Meanwhile, the yen has appreciated, leading the USD/JPY pair to dip to 156.62.