The U.S. dollar continued to be firm on Friday and remained on track for its fifth straight weekly gain. The U.S. Dollar Index (DXY), which measures the U.S. dollar against six major currencies, has gained 2.87% year-to-date. The DXY remains on track for its fifth gain in a row.
Meanwhile, on Thursday, a series of macroeconomic data for the U.S. economy was released, revealing a 0.8% decline in U.S. retail sales in January, its biggest drop since March 2023. Consumer spending slowed down as seasonal factors and frigid weather impacted spending. The jobless claims data indicated a fall of 8,000 to a seasonally adjusted 212,000 for the week ended February 10. This was below economists’ forecast of 220,000 claims for the week ending February 10 and showed that the labor market continued to be tight.
Earlier this week, Fed Vice Chair for Supervision Michael Barr stated that the Fed’s path to achieving its target inflation rate of 2% would be a “bumpy one.” Any expectations of significant rate reduction from the Fed have been dashed by the economic data. According to the CME FedWatch tool, traders expect an 80% probability of a rate cut in June.
Overall, traders estimate interest rates to be lowered by 94 basis points (bps) this year, nearer to the Fed’s own forecast of a 75 bps cut in interest rate.
Worries Over the Japanese Yen
The Japanese Yen continued to weaken and was down 0.22% at 150.27 per dollar, moving around the 150 mark as Japan slid into a recession. The latest economic data showed that Japan’s gross domestic product (GDP) contracted for two consecutive quarters due to a softening in consumer demand. This indicated that its economy had fallen firmly into a recession.
Many analysts expect that the Japanese Central Bank, the Bank of Japan, will end negative interest rates over the coming months, as it will give the bank more time to analyze the health of the economy.
Meanwhile, the UK economy also entered into a recession late last year, reinforcing expectations that the Bank of England (BoE) will cut rates this year. Traders are anticipating that the BoE will slash interest rates by 73 bps this year.
Source: TradingView
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