U.S. Dollar Dips as Rate Cut Expectations Fade
U.S. Dollar Index Slips Despite Weekly Gain
The U.S. dollar slightly decreased in early European trade on Friday, but it was still poised for its largest weekly increase in over a month. This rise comes as expectations of early Federal Reserve rate cuts diminish.
As of 04:40 ET (08:40 GMT), the Dollar Index, which measures the dollar against a basket of six other currencies, was down 0.1% at 104.910. However, it was on track for a weekly gain of 0.6%, marking its most significant one-week rise since mid-April.
Dollar Strengthens on Reduced Rate Cut Predictions
Data released on Thursday revealed that U.S. business activity surged to its highest level in over two years in May. This development led to a decrease in expectations for U.S. interest rate cuts and an increase in government bond yields.
The minutes from the Fed’s late-April meeting indicated growing concerns among policymakers regarding persistent inflation. This, coupled with cautious remarks from various officials on monetary policy easing, has influenced the market sentiment.
Traders, as per the CME Fedwatch tool, are now pricing in almost equal probabilities of a rate cut and a hold in September. Previously, expectations leaned towards a cut, with over a 50% chance.
Sterling Weakens Following Disappointing UK Retail Sales
In Europe, the pound slipped to 1.2696 after UK retail sales plummeted by 2.3% in April, more than anticipated. Unfavorable weather conditions deterred shoppers from clothing and sports stores.
Despite doubts in the market, analysts at ING still anticipate an August cut, contrary to the prevailing sentiment. Meanwhile, the euro traded higher at 1.0821 after Germany’s GDP grew by 0.2% in the first quarter of 2024.
Yen Climbs to Three-Week High
In Asia, the yen gained 0.1% to 157.07, reaching a three-week high. The currency’s rebound from recent lows was supported by government intervention earlier in May. On the other hand, the yuan traded higher at 7.2448, close to a six-month high, despite ongoing trade tensions and weak consumer spending.
