Original article by Brigid Riley, Reuters
Title: Dollar Gains Slightly Ahead of Key U.S. Economic Data and Fed Guidance
The U.S. dollar edged higher on Monday, as traders exercised caution ahead of several significant economic reports expected throughout the week, which could influence the Federal Reserve’s interest rate path.
Markets were focused on the upcoming U.S. inflation, labor market, and consumer spending data, with the Federal Reserve’s preferred inflation gauge — the Personal Consumption Expenditures (PCE) index — scheduled to be released on Friday. The developments are seen as pivotal in determining how long the Fed may maintain higher interest rates, especially after the central bank’s recent shift in tone at its January policy meeting.
Key Market Highlights
– The U.S. dollar index (DXY), which tracks the greenback against six major currencies, was up slightly at 104.12 by Monday afternoon in Asia.
– The greenback has strengthened more than 3% since the start of 2024, recovering from lows reached in late December 2023.
– The euro slipped around 0.12% to $1.0814, while the British pound declined 0.09% to $1.2656.
– The Japanese yen traded modestly weaker at 150.62 per dollar, nearing a level last seen in November 2022, when authorities intervened to stabilize the currency.
– U.S. Treasury yields inched higher, with the 2-year yield close to 4.72%, reflecting market expectations that the Fed may not lower interest rates as quickly or as deeply as previously anticipated.
Traders Await Key U.S. Economic Indicators
This week is crucial for currency markets, with a batch of U.S. economic data expected to provide new insights into inflation and the resilience of consumer demand. The centerpiece will be Friday’s release of the U.S. PCE price index, which is the Fed’s preferred inflation metric.
– Economists surveyed by Reuters estimate core PCE prices rose 0.4% month-on-month in January, and 2.8% year-on-year, following a 2.9% annual increase in December.
– A stronger-than-expected PCE reading could stall or even reverse bets on rate cuts beginning in mid-2024.
– Other key data points to be released during the week include:
– January durable goods orders
– February consumer confidence
– January personal income and spending
– The second estimate of Q4 GDP
– Weekly jobless claims
Federal Reserve members, including Fed Governor Christopher Waller and Atlanta Fed President Raphael Bostic, are also scheduled to speak publicly later in the week, potentially offering clues on how policymakers interpret the incoming data.
Fed’s Policy Outlook Still Awaits Clear Direction
Since the start of the year, market sentiment has seen a significant shift. In late 2023, futures markets priced in six rate cuts from the Fed in 2024, with the first cut anticipated as early as March. However, robust economic data and concerns over sticky inflation have led market participants to reassess these projections.
– As of Monday, markets now anticipate fewer than four rate cuts in 2024, starting no earlier than June, according to CME’s FedWatch Tool.
– Fed Chair Jerome Powell and other members have recently emphasized a cautious approach, indicating that they need more evidence of inflation sustainably returning to the 2% target before moving to cut rates.
This cautious stance has underpinned the dollar’s recent rebound, helping it recover from multi-month lows against major currencies.
Japanese Yen Approaches Intervention Zone
The Japanese yen’s depreciation has caught investor attention, especially as it approaches 151 per dollar — a level that previously prompted authorities in Tokyo to step in and support the currency in 2022.
– Japan’s Finance Minister Shunichi Suzuki stated on Monday that the government is closely watching currency moves with “a sense of urgency,”
Read more on EUR/USD trading.