Title: US Dollar Remains Strong as Markets Await Fed Signals
By Mitrade Team
Original article credit: Mitrade (source: https://www.mitrade.com/insights/news/live-news/article-6-1044914-20250816)
The US dollar held firm on Wednesday against a basket of major currencies, demonstrating resilience amid cautious sentiment in the lead-up to key policy signals expected from the Federal Reserve. With traders assessing global macroeconomic developments and pricing in future interest rate paths, the greenback remains supported by robust US economic data and safe-haven appeal.
Below is a comprehensive overview of the major developments influencing the currency markets and the outlook for the US dollar, the euro, the Japanese yen, and others as of mid-August 2024.
Overview of Dollar Performance
– The US Dollar Index (DXY), which tracks the dollar’s performance against six major currencies, was steady at 103.20.
– Market participants remain focused on upcoming economic indicators and any comments from Federal Reserve officials that could clarify the US interest rate trajectory.
– Investors are also closely watching global geopolitical developments and risk sentiment, which have contributed to the dollar’s safe-haven appeal.
Economic Strength Supporting the Dollar
Strong US economic data continues to underpin the dollar’s strength. Recent releases have confirmed that the world’s largest economy remains resilient:
– Retail sales data for July exceeded expectations, coming in at a monthly growth of 0.7 percent, compared to the consensus estimate of 0.4 percent.
– The core retail sales figure, which excludes automobiles, gasoline, building materials and food services, rose 1.0 percent.
– Industrial production also showed improvement, increasing by 1.1 percent in July following a downwardly revised 0.5 percent decline the previous month.
– The latest initial jobless claims and non-farm payrolls data indicated continued strength in the US labor market.
– Consumer price index (CPI) inflation slowed modestly, yet underlying pressures remain, keeping the Fed’s tightening policy on track.
These robust data points suggest that the Federal Reserve may retain a hawkish position to ensure inflation is sustainably lowered to its 2 percent target.
Focus on Federal Reserve Minutes
Later today, investors will turn their attention to the minutes from the July Federal Open Market Committee (FOMC) meeting. These minutes are expected to shed light on Fed policymakers’ stance on the future course of interest rates.
Expectations include:
– Clarity on whether additional rate hikes are on the table for the remainder of 2024.
– Insight into how inflation dynamics and the strength of the labor market are factoring into the Fed’s decision-making.
– Any discussion among committee members on risks to economic growth or financial stability.
Markets currently price in a roughly 25 percent probability of another 25-basis-point rate hike by the end of the year, according to the CME FedWatch Tool.
Euro Struggles to Maintain Momentum
The euro remains under pressure as economic data from the eurozone continues to disappoint. EUR/USD traded around 1.0910 on Wednesday after slipping from recent highs.
Key factors weighing on the euro include:
– Weak GDP growth in Germany and other key eurozone economies.
– Lower-than-expected manufacturing and services PMI data.
– Concerns over energy prices and their impact on consumer and corporate spending.
– Divergence between ECB and Fed monetary policy paths.
European Central Bank officials have expressed caution about further rate hikes following the recent slowdown in inflation and economic activity. While the July ECB meeting included a 25-basis-point rate hike, future hikes are no longer viewed as certain. ECB President Christine Lagarde emphasized a data-dependent approach, and recent releases suggest limited room for more tightening.
Investors will be paying close attention to upcoming eurozone inflation and growth data for August, which could sway ECB policy expectations.
Yen Under Pressure as Yield Gap Widens
The Japanese yen continues to weaken against the US dollar, with USD/JPY trading
Read more on EUR/USD trading.