The dollar holds ground as macro data hints at a later Fed rate cut. After two days of tumultuous trading that saw substantial falls followed by a comeback, traders saw incoming economic data as a hint that the Federal Reserve will wait longer before reducing interest rates.
As a result, the dollar held its ground on Thursday, despite the fact that these traders interpreted the data as suggesting the Fed would wait longer. A fall in regional equity markets was accompanied by a dip in the risk-sensitive Australian and New Zealand currencies.
After building a comeback on Wednesday from its sharpest drops against its main rivals in a year, the value of the United States dollar rose slightly to $1.08395 per euro and $1.2395 against the pound while trading broadly unchanged at 151.33 yen. This comes after the currency had fallen to its lowest levels against significant peers in a year.
The dollar index rose by 0.14% to reach 104.47, and it compares the value of the greenback to that of the euro, the pound, the yen, and three other currencies. Following a drop of 1.51% the previous day, it rose by 0.31% on Wednesday.
The dollar received support from retail sales statistics that were stronger than expected, in addition to fresh evidence of inflation falling. This fed into the narrative for an economic ‘ soft landing’ and would give the Fed more time before reducing rates.
According to James Kniveton, senior corporate FX dealer at Convera, “while inflation is falling, the economy remains robust, which might even allow the Fed to increase rates if they choose.” However, he did note that there does not appear to be a desire for a rise among Fed members now. “While inflation is falling, the economy remains robust,”
According to the CME Group’s FedWatch Tool, traders are confident that interest rates will not continue to rise. Still, the odds of a first-rate cut occurring by March have decreased to less than one in four from better than one in three the day before.
Ben Bennett, an investment strategist for APAC at Legal and General Investment Management, had a more reserved approach to the future.
“It’s a narrow path to a soft landing, and this is just one step on that path,” according to him.
“We could very easily get more data in the coming weeks that suggests the Fed needs to hike again, or indeed that growth is rolling over and a recession is more likely.” In other currency exchanges, the Australian dollar fell by 0.45% to $0.6480, while the New Zealand dollar fell by 0.62% to $0.59855.
The Australian dollar could not take support from a strong comeback in employment, as traders focused on the fact that increases were primarily in part-time labor while the unemployment rate nudged higher. This resulted in the Australian dollar failing to draw support from the robust rebound in employment.