US dollar holds last week’s gains with US inflation data in focus

THE greenback held on to most of last week’s gains on Monday (Jan 8) after posting its biggest weekly rise against a basket of other major currencies since July, putting a halt to the declines seen in late 2023.

The euro was little changed at US$1.0945, bruised after a 0.9 per cent fall last week brought its recent rally to a sudden end. The yen was flat at 144.6 per US dollar, having weakened sharply from 140.8 per US dollar at the start of the year.

That left the US dollar index, which tracks its performance against six other currencies, at 102.45. The index gained 1 per cent last week, the most in six months, a bounce back from its losses late last year.

Those losses came as data showed a sharp slowdown in inflation around the world, driving expectations of central bank rate cuts, particularly by the Federal Reserve, and sparking a rally in equities, a trend which came to an end at the start of 2024.

“Everyone basically left (last) year (set for) the Fed to aggressively ease policy, growth conditions to pick up in the rest of the world, thinking everyone’s good, just buy equities. We’ve had a bit of a reality check,” said Simon Harvey head of FX analysis at Monex Europe.

“Momentum higher in the (US) dollar was kickstarted by a bit of that unwinding, and then it was sustained as US rates became more hawkish – something had to give, either markets had to pull back on Fed easing or increase the risk of recession in asset prices.”

Markets are now pricing roughly a 60 per cent chance of a Federal Reserve rate cut in March, down from about 90 per cent at the end of December.

A reading on US inflation due on Thursday could again alter those views, after data on Friday showed US employers hired more workers than expected in December while raising wages at a solid clip, pointing to a still-resilient labour market.

However, a separate survey out the same day showed the US services sector slowed considerably last month, with a measure of employment hitting its lowest in nearly three-and-a-half years, painting a mixed picture of the world’s largest economy.

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Elsewhere, sterling eased a fraction to US$1.2711, and the Swiss franc, which lost ground last week after recent gains, was a touch softer on the day at 0.8514 per US dollar. REUTERS