Forex Dollar Strengthens as U.S. Retail Sales Boost Confidence - Latest Money Market Trends

Forex dollar continues to hold its ground near a one-month peak against major currencies. The latest data has fueled expectations that the Federal Reserve will exercise caution in reducing interest rates.

The U.S. dollar index, gauging the currency against a basket of six rivals, experienced a slight dip to 103.29 in the Asian afternoon, following Wednesday's climb to 103.69, marking its highest point since December 13.

Market sentiment reflects a moderation in the likelihood of an initial Fed rate cut by March, reducing from 65.1% on Tuesday to 61%, as indicated by CME's FedWatch Tool.

While the market still factors in a potential 150 basis points of cuts by year-end, recent statements from Fed officials, including Governor Christopher Waller, have pushed back against the notion of swift policy loosening.

Tony Sycamore, an analyst at IG, commented, "Pricing in the US rates market now looks much more reasonable," suggesting that the USD rebound in 2024 has reached a stable point for the time being.

Overnight, the dollar reached 148.525 yen, its highest level since late November, before trading 0.08% lower at 148.04 yen by the end of the day. In the preceding week, it had weakened to 144.35 yen.

Factors such as the recent earthquake in central Japan and diminishing hawkish Bank of Japan expectations have influenced the dollar-yen pair. Shoki Omori, Chief Japan Desk Strategist at Mizuho Securities, predicts the pair to fluctuate between 145 and 150 in the near term.

The euro, rebounding from a five-week low of $1.08445 on Wednesday, is 0.09% higher at $1.08915. This recovery is supported by ECB President Christine Lagarde's comments hinting at majority support among ECB officials for a potential interest rate cut in the summer.

Sterling remains stable at $1.26815, following a rally spurred by unexpected inflation acceleration in December. This reinforces expectations that the Bank of England will adopt a more measured approach to rate cuts compared to other central banks.

The Australian dollar, after recovering from losses, hovers around $0.65545. Despite an unexpected drop in employment in December, the currency maintains technical support around $0.6520. Analysts emphasize that the next directional move for the Australian dollar hinges on Fed expectations and, consequently, the U.S. dollar's performance.

Also Read: Forex Dollar Dips, Yuan Slides: Market Moves After PBOC's Surprise and Fed Rate Cut Bets