During the week ending January 24, the U.S. Dollar experienced a notable decline against major global currencies, influenced by a perceived shift in the U.S. administration's stance on trade tariffs and President Trump's appeal to international central banks to lower interest rates.
The Dollar's downturn was exacerbated by weak economic data emerging from the U.S. It depreciated against several key currencies, including the euro, British pound, Australian Dollar, and Japanese Yen, while also decreasing against the Canadian Dollar, Swedish Krona, and Swiss Franc, leading to a drop in the Dollar Index.
The Dollar Index, which gauges the currency's strength against a select basket of six currencies, fell from 109.35 on January 17 to 107.44 by January 24, marking a 1.75% decline. The week's trading witnessed a high of 109.47 on Monday and a low of 107.22 on Friday, representing the steepest decline since November 2023.
The Dollar, previously buoyed by potential high tariffs hinted by the U.S., receded on Monday due to a lack of immediate tariff announcements from President Trump.
U.S. Department of Labor data released on Thursday revealed initial jobless claims rose to 223,000 for the week ending January 18, exceeding market expectations of 220,000. This increase of 6,000 was the sharpest in six weeks.
S&P Global data on Friday highlighted a rise in the Manufacturing PMI to 50.1 for January, up from 49.4 the previous month, surpassing expectations of 49.7. Conversely, the Services PMI dropped to 52.8 from the expected 56.5. Consequently, the Composite PMI decreased to 52.4 in January from 55.4, raising concerns about the U.S. economy's resilience and fueling speculation on the Federal Reserve's rate stance, further pressuring the Dollar. President Trump's remarks at the World Economic Forum in Davos, urging global central banks to cut rates, also contributed to the Dollar's weakness.
This weakened Dollar and reduced tariff concerns lifted the EUR/USD pair to a high of 1.0523 on Friday from a low of 1.0266 on Monday, resulting in a weekly gain of 2.16%, closing at 1.0493 compared to 1.0271 the previous week. Despite prospects of another rate cut from the European Central Bank, the EUR/USD rose.
The GBP/USD saw a 2.6% increase during the week, pushing the sterling to $1.2479 from $1.2163 a week earlier. The pair rose from a low of 1.2159 on Monday to a high of 1.2503 on Friday. Currency movements were influenced by higher-than-expected unemployment rates, declining consumer confidence, and stronger PMI readings.
The Australian Dollar appreciated by 1.92% against the U.S. Dollar for the week, moving from a low of 0.6189 on Monday to a high of 0.6332 on Friday, closing at 0.6309 compared to 0.6190 previously. Robust Chinese economic indicators and softening U.S.-China trade stances bolstered the Australian Dollar.
The USD/JPY pair declined by 0.2% over the week, amidst expectations of a rate hike by the Bank of Japan, dropping to 155.98 from 156.30. The weekly range was between 154.77 and 156.76. The Bank of Japan raised its key short-term interest rate by 25 basis points to 0.5%, the highest in 17 years.
In spite of renewed tariff concerns at the week's start, the Dollar continued to weaken on Monday. The Dollar Index traded between 107.14 and 107.81, down from Friday's close of 107.44, currently at 107.19. The anticipation of the Fed's interest rate decision on Wednesday and upcoming economic data added to the cautious market sentiment.
Looking ahead, the U.S. economic data schedule includes December's Durable Goods Orders on Tuesday, advance GDP estimates for the fourth quarter on Thursday, and PCE-based inflation readings for December on Friday.
Ahead of the European Central Bank's rate review on Thursday, the EUR/USD has risen to 1.0511, and the GBP/USD has climbed to 1.2502. The AUD/USD has slipped to 0.6300 amid weaker factory data from China, and the USD/JPY has dropped to 153.85 from Friday's close of 155.98.
