US Dollar Rallies, Euro Falls, as Investors Eye Inflation Data and Tariffs
Market Insights
The US dollar rose against a broad range of currencies on Friday, partly retracing losses versus the yen as investors consolidated positions ahead of the weekend, looked to more inflation data next week, and kept an eye on tariff headlines.
Consolidation Ahead of the Weekend
"It’s a bit of consolidation ahead of the weekend. The moves lack conviction and this is still position-squaring," said Marc Chandler, chief market strategist, at Bannockburn Global Forex in New York. "To me, the dollar peaked the week before the Trump inauguration. This is just a continuation of that correction."
Dollar Gains, Yen Falls
In late morning trading, the dollar was last flat on the day against the yen at 149.58 yen. It has fallen in five of the last six weeks, and was down 1.8 per cent on the week.
Fed Rate Cuts and Inflation Data
The reports kept the prospect of interest rate cuts by the Federal Reserve intact this year, even though it will remain on hold for the next several months. US rate futures have priced in 44 basis points (bps) of easing this year, compared with 38 bps on Thursday, according to LSEG calculations. The Fed could likely resume cutting interest rates again either at the September or October policy meeting, LSEG data showed.
Markets to Look to PCE Index
Markets will look to the release of the Personal Consumption Expenditures (PCE) index, the Fed’s preferred inflation measure, next Friday.
Euro Zone Data
The euro, meanwhile, stumbled after a series of business activity surveys showed a sharp contraction in early February in France and only mild improvement in Germany – the euro zone’s traditional twin engines of growth. It was last down 0.4 per cent at US$1.0455, on track for its largest daily fall since early February.
German Elections
Investors are also looking at Sunday’s election in Germany, where polls point to a conservative coalition win that could be pivotal in shaping their expectations for future economic growth.
Conclusion
The US dollar rallied on Friday, partly retracing losses versus the yen, as investors consolidated positions ahead of the weekend and looked to more inflation data next week. The euro fell after a series of business activity surveys showed a sharp contraction in early February in France and only mild improvement in Germany. Markets will look to the release of the PCE index next Friday.
Frequently Asked Questions
Q: What is the current state of the US dollar?
A: The US dollar rose against a broad range of currencies on Friday, partly retracing losses versus the yen.
Q: What is the current state of the euro?
A: The euro stumbled after a series of business activity surveys showed a sharp contraction in early February in France and only mild improvement in Germany.
Q: What is the prospect of interest rate cuts by the Federal Reserve?
A: The reports kept the prospect of interest rate cuts by the Federal Reserve intact this year, even though it will remain on hold for the next several months.
Q: What is the current state of the pound?
A: The pound fell 0.3 per cent to US$1.2633 due to overall dollar strength.
