The Federal Reserve's increasing assurance that inflation would remain steadily at the 2 percent mark, coupled with hints of substantial rate cuts from Jerome Powell during his Congressional testimony, led to the U.S Dollar taking a notable dive last week. The downfall was observed against multiple currencies including the Euro, the British Pound, the Australian Dollar and the Japanese Yen. Large losses were also recorded in the Dollar Index during the week ending on March 8, 2024.
The Dollar Index, a gauge of the U.S. Dollar's prowess against six other currencies, plummeted by 1.1 percent in the same week. It descended continuously from its previous closing level of 103.86 on March 1, ending at 102.71. The week's peak was recorded on Monday at 103.96 while the week saw its lowest level at 102.36 on Friday.
On Tuesday, data revealed a marginal slowdown in the growth of the services sector with the ISM Services PMI dropping to 52.6 in February, lower than its four-month high of 53.4 in January and forecasts of 53. Despite anticipated reaffirmation of patience before initiating rate cuts by Jerome Powell, the Federal Reserve Chair, his implications of forthcoming rate cuts later in 2024 intensified the Dollar's depreciation. His emphasis on the risks of delaying rate cuts further worsened the Dollar's declines.
The monthly jobs report released on Friday indicated an inflation in the unemployment rate from 3.7 to 3.9 percent which marked the highest point since January 2022. Nonetheless, the non-farm payrolls saw an addition of 275,000 in February outstripping market expectations of an additional 200,000. The mixed findings sowed more seeds of doubt regarding the Fed's potential rate actions and managed to curtail the Dollar's devaluation.
The slackening of the Dollar boosted the EUR/USD pair to a Friday high of 1.0982 from a Monday low of 1.0838. The upbeat trade data from Germany improved confidence in the Euro. However, the gains for the pair were limited when the European Central Bank decided to maintain interest rates, while acknowledging faster-than-anticipated deflation, on Thursday. Simultaneously, the GBP/USD pair rose 1.6 percent last week, bolstering sterling to $1.2857 from $1.2650. Market beliefs that the Bank of England would take a slower approach to rate cuts further aided sterling.
The Australian Dollar also made a significant 1.59 percent jump against the U.S. Dollar last week, reaching 0.6669 on Friday after climbing from Tuesday's low of 0.6477. Encouraging Australian economic growth data combined with China's higher-than-expected trade surplus boosted the AUD/USD pair.
The USD/JPY pair dropped by more than 2 percent during the week due to the weakening Dollar and speculation that the Bank of Japan might soon abandon its negative interest rates policy.
Following Powell's Congressional testimony, the CME FedWatch tool showed expectations for rate cuts at 24 percent for the May FOMC review and 73 percent for June. Despite the anticipations, investors are eagerly awaiting the U.S. CPI readings for February, due on Tuesday.
Currently, The Dollar Index is lingering around 102.88. The EUR/USD pair stands at 1.0920, and the GBP/USD pair has also decreased to 1.2820. Meanwhile, the AUD/USD and USD/JPY pairs stand at 0.6602 and 147.05, respectively.
