The U.S. dollar maintained its strength in early European trade, holding onto most of its gains from the beginning of 2024. Traders eagerly awaited key U.S. inflation data, which could provide insights into the Federal Reserve’s potential interest rate cuts. The Dollar Index, tracking the greenback against major currencies, remained flat at 102.090 but sustained a 1% increase since January.
Focus on U.S. CPI Data and Fed’s Rate Cut Expectations
The dollar’s demand persisted in the new year as markets adjusted their expectations regarding early interest rate cuts by the Federal Reserve. Despite the dollar’s strength, futures markets indicated approximately 140 basis points of cuts in 2024, with a likelihood of starting as early as March. The release of December’s U.S. Consumer Price Index (CPI) later in the day was anticipated to significantly impact sentiment and influence the Fed’s decisions in its upcoming meeting.
Euro Stabilizes Amid Mixed Spanish and Italian Data
EUR/USD remained mostly unchanged at 1.0974 in European trading. Positive data showed a rebound in Spanish industrial production, rising 0.8% annually in November. However, contrasting figures from Italy revealed a more substantial than expected 1.5% monthly drop in November, contributing to concerns about economic contraction. The European Central Bank’s Vice President, Luis de Guindos, acknowledged the possibility of a technical recession in the latter half of 2023.
GBP/USD Inches Up; Yen Hovers Near One-Month Low
GBP/USD saw a 0.1% increase to 1.2756, with Bank of England Governor Andrew Bailey’s silence on potential rate cuts offering support to the sterling. USD/JPY traded 0.1% lower at 145.53, with the yen nearing a one-month low due to growing expectations that the Bank of Japan will postpone a shift from its ultra-dovish policy. USD/CNY fell slightly to 7.1628, as the yuan showed signs of recovery amid concerns about China’s economic rebound, with inflation and trade data due later expected to reveal modest improvements.