US Dollar Gains as Markets Await Inflation Data
Investors Anticipate U.S. Inflation and Retail Sales Data
The dollar gained against the euro and other major currencies as investors awaited U.S. inflation and retail sales data. This week’s release will provide clues on when the Federal Reserve may begin interest rate cuts. The dollar index, which measures the U.S. currency against six others, rose by 0.25% to 104.23. The market expects the consumer price index (CPI) for January to show a slowdown in inflation.
Market Expectations for U.S. Inflation and Retail Sales
The upcoming CPI release is expected to give the Fed further confidence that inflation is moving towards its 2% target. Retail sales data for last month are also anticipated to confirm decelerating inflation, which could cap rising Treasury yields and the recent strength of the dollar. Analysts believe that soft CPI and retail sales figures will boost the Fed’s confidence in inflation returning to its target.
Impact on Euro and Market Expectations
The euro fell by 0.22% to $1.07595 amid subdued market activity. The upcoming release of the euro zone’s economic growth data in the fourth quarter could provide fresh direction for the currency. Changing expectations of interest rate cuts by central banks based on inflation trends are driving currency markets. Strong U.S. jobs data in February has reduced expectations of a Fed rate cut in March.
Effect on Dollar and Central Bank Policies
The lack of divergence between the Fed and other central banks, including the European Central Bank (ECB), has kept the dollar rangebound. Market pricing for the first ECB rate cuts has been pushed back, despite weaker economic data in Europe. This has prevented the dollar from moving significantly higher.
Anticipated U.S. Core CPI and Other Global Data
Analysts expect U.S. core CPI to come in at 0.3% month-on-month in January, with a year-over-year rate of 3.7%. Additionally, data on inflation and GDP in Britain is due this week and is likely to influence opinions on when the Bank of England will begin cutting interest rates.
Global Market Movements
The highly rate-sensitive yen has weakened as the timing of U.S. rate cuts got pushed back. Japanese authorities intervened late last year to prop up the yen, which weakened to as much as 151.94 per dollar. The Japanese yen weakened by 0.07% to 149.43 per dollar, while Bitcoin rose by 4.43% to $49,649.00, its highest level since December 2021.
