The dollar hovered near a one-month high against major currencies on Thursday after strong U.S. retail sales data reinforced expectations that the Federal Reserve would not accelerate interest rate cuts. The dollar index, which measures the performance of the U.S. currency against a basket of six competing currencies, dipped slightly to 103.29 in Asian afternoon trading. The index had reached 103.69 on Wednesday for the first time since December 13.
According to CME's FedWatch data, traders reduced the chances of the Federal Reserve cutting interest rates for the first time in March to 61% from 65.1% on Tuesday. The market still anticipates potential cuts of 150 basis points by the end of the year, even as Federal Reserve officials, including Governor Christopher Waller, this week backed away from expectations of rapid monetary policy easing.
Tony Sycamore, an analyst at IG, stated, "The pricing in the U.S. interest rate market now seems more reasonable. The dollar has rebounded enough in 2024 so far." The dollar rose to 148.525 yen during overnight hours for the first time since late November but fell 0.08% in the latest trades of the day to 148.04 yen.
The euro gained 0.09% to $1.08915. It rebounded from a five-week low of $1.08445 reached on Wednesday, supported by comments to Bloomberg from European Central Bank President Christine Lagarde that there may be majority support among ECB officials for rate cuts in summer, later than market expectations for spring cuts.
The British pound stabilized at $1.26815 after a rise on Wednesday, driven by data showing that inflation unexpectedly accelerated in December, strengthening expectations that the Bank of England would be slower in cutting rates compared to its counterparts. The pound's 0.31% rise during overnight trading ended a three-day decline against the dollar, limiting gains the dollar index saw on Wednesday, which includes the pound in its basket.
The Australian dollar also stabilized at $0.65545, recovering from sharp losses that brought it to $0.65255 earlier when data showed an unexpected drop in employment in December, reinforcing the belief that interest rates in the country have peaked.
