Market Update: Dollar Resilience and Euro Strength
U.S. Dollar Holds Strong in Early European Trade
The U.S. dollar showcased resilience in early European trade on Friday, maintaining most of its overnight gains following the release of highly anticipated U.S. inflation data. Meanwhile, the euro displayed some strength in the market.
At 04:00 ET (09:00 GMT), the Dollar Index, tracking the greenback against a basket of six other currencies, traded relatively unchanged at 104.107 after a volatile overnight session.
U.S. Dollar Shows Resilience
The Core PCE Price Index, the Federal Reserve’s preferred inflation measure, moderated in January but remained above the central bank’s annual inflation target, reflecting persistent price pressures in the U.S. economy. This led to market expectations shifting to a potential rate cut in June instead of earlier in the year.
Analysts at ING noted, “Investors are comfortable with three 25bp cuts priced in by December as there is just not enough data evidence to turn more dovish now.”
Euro Gains Momentum Ahead of Eurozone CPI
The euro edged higher, trading at 1.0813, in anticipation of the release of the CPI figure for February in the eurozone. Economists expect a slowdown in inflation from 2.8% in January to 2.5% in February.
While short-term fluctuations in eurozone rates and the euro may occur based on CPI data, the overall narrative remains unchanged, according to ING analysts.
British Pound Sees Positive Movement
The British pound traded at 1.2635, as data from mortgage lender Nationwide indicated a rise in house prices in February compared to the previous year, marking the first annual increase since January last year.
Inflation in the U.K. is decreasing but remains higher than in Europe and the U.S., suggesting a delayed response from the Bank of England regarding rate cuts.
Asian Markets React to Weak Chinese PMI
Asian markets saw the yuan weaken after official PMI data revealed a fifth consecutive month of contraction in China’s manufacturing sector. This offset some positive trends in consumer spending during the Lunar New Year holiday.
The yen traded higher at 150.66, with the prospect of extended higher U.S. rates overshadowing potential rate hikes by the Bank of Japan.
