The US dollar moves toward dominance again
Daily Currency Update
The US dollar inched closer to reclaiming its position as the dominant currency as the US Dollar Index (DXY) surged past several crucial technical thresholds. This shift was a response to the realization in the markets that interest rate cuts are unlikely to occur before June from the US Federal Reserve, European Central Bank (ECB), and Bank of England (BoE). Christopher Waller Fed member revised his stance from early November, indicating that rate cuts will be considered only if inflation doesn’t rise again. The US released a positive Mortgage Applications report for the week of January 12. This data indicated a 10.4% increase compared to the previous 9.9%. In other data news, consumer spending grew, expanding by 0.6%, surpassing the anticipated 0.4% and the previous figure of 0.3%. Retail sales also increased by 0.6% monthly, and Industrial Production saw a 0.1% uptick, contributing to the strengthening of the USD. The Fed reported a 0.1% month-over-month growth in Industrial Production, surpassing expectations of stagnant growth. On a year-over-year basis, the figures surged by 1%, marking a significant turnaround from the -0.4% decline in November.Key Movers
The EUR/USD pair initially extended its decline to 1.0855 early in the day, gradually trimming intraday losses to maintain a flat trajectory around the 1.0870 level. Fed officials introduced uncertainty regarding the likelihood of interest rate cuts, causing a notable downturn in stocks and a pronounced increase in Treasury yields. European stocks mirrored the performance of their international counterparts, registering losses and exerting downward pressure on Wall Street futures. In data news, the Eurozone reaffirmed the December Harmonized Index of Consumer Prices (HICP) at 2.9%.The GBP retraced some of its advances following the notable positive surprise in United States Retail Sales. The GBP/USD pair rebounded from its losses as expectations for an imminent rate cut by the BoE diminished amid increased price pressures. The Consumer Price Index (CPI) surpassed expectations, driven by a notable surge in oil prices and a slight uptick in service inflation. The sustained high inflation in the UK provided BoE policymakers with flexibility to retain the current interest rates of 5.25% for an extended duration. BoE members have consistently cautioned against premature discussions of interest rate cuts, emphasizing that price pressures remain significantly above the targeted rate of 2%.
The AUD/USD faced a decline, influenced by the robust US economy and China's sluggish Gross Domestic Product (GDP). Additionally, the AUD/USD's downward trend was intensified by strong economic indicators from the US, leading to its current level at 0.6534, reflecting a 0.76% decrease.
The USD demonstrated strength against its Canadian counterpart as investors reconsidered their expectations of early and aggressive rate cuts by the Federal Reserve in 2024. After a retreat on Tuesday, the Canadian dollar gained ground following mixed Consumer Price Index (CPI) data and weaker-than-anticipated US Manufacturing figures. Despite the pullback, buyers emerged at 1.3450, propelling the pair to the 1.3500 level.
Expected Ranges
- EUR/USD: 1.0882 - 1.0849 ▲
- GBP/USD: 1.2693 - 1.2599 ▲
- AUD/USD: 0.6596 - 0.6529 ▲
- USD/CAD: 1.3538 - 1.3474 ▼