The U.S. dollar (USD) is losing ground in early European trading today but remains near recent highs, as expectations persist that U.S. interest rates will stay high for some time. Meanwhile, the euro (EUR) faces a crucial test with the upcoming wage data release later today.
With the U.S. stock market reopening today after its holiday, investors will closely watch the behavior of both currency and stock markets. Additionally, there is anticipation for market reactions to the upcoming release of the Federal Reserve (Fed) minutes this week.
The dollar is quiet in anticipation of the Federal Reserve’s minutes
The U.S. currency has lost value today, Tuesday, as U.S. markets reopen after the Presidents’ Day holiday, although the dollar is close to a three-month high, thanks to growing expectations that the Federal Reserve may delay the start of its interest rate cutting cycle, possibly until mid-year, compared to the estimate for March at the beginning of this year.
Data released last week showed that both consumer and producer prices rose more than expected in January, while Federal Reserve Board member Mary Daly said on Friday last week that “there is still work to be done” to bring inflation back to the U.S. central bank’s target level of 2%.
The U.S. economic data calendar for today, Tuesday, is uneventful, potentially leading to subdued trading ahead of the release of last month’s Fed meeting minutes next Wednesday..
Given the current sentiment, it appears the dollar will maintain its strength in the currency market, as there is little expectation for the Fed to lower interest rates in the near term. Likewise, last week, Fed Governor Christopher Waller stated that he does not believe the U.S. dollar will cease to be the reserve currency worldwide and lose its importance in the currency market to China’s Yuan (CNY) and cryptocurrencies.
Currently, strong U.S. economic data supports the dollar, yet it also suggests the potential for rate cuts. The coming weeks will be crucial for understanding the direction of the country’s monetary policy.
The euro awaits the release of the European Central Bank’s wage data
On the European continent, the EUR/USD is set to rise 0.2% to the 1.0795 level, after news that the euro zone’s current account balance showed a much larger surplus than expected in December, which translates to a possible economic recovery.
Those interested in trading the currency market and taking profits from the EUR/USD pair are now looking forward to the release of the regional wage data for the fourth quarter, which will be released later in the day, due to the importance of the European Central Bank (ECB) to learn more about wages. This is of utmost importance as the central bank has been raising wages in recent times in order to somehow curb inflation.
The GBP/USD is up 0.1% to 1.2605 in an uneventful day ahead of the monthly business activity survey results.
All indications are that Purchasing Managers’ Index (PMI) data will signal that UK business activity is on an improving path, driven by the fastest increase in service sector activity since May last year.
This will be followed by Friday’s data which may show that retail sales in the UK increased in the last month at a much faster pace compared to the last three years.
China officially cuts Interest Rates, Yen continues to lose ground in FX markets
In Asia, the USD/CNY, is flat at the 7.1983 level, boosted by a powerful daily midpoint after the People’s Bank of China (PBOC) made official the cut of its benchmark five-year interest rate by 25 basis points, much more than expected, to 3.95%, record lows.
However, the move has not sufficiently cheered Asian markets, as it puts into context the growing anxiety of most governments over the economic slowdown in Asia’s most powerful economy.
The USD/JPY was trading up 0.1% to the 150.31 level, and was seen lacking strength after breaking above the 150 level as the prospect of a slow withdrawal of the Bank of Japan’s (BoJ) loose monetary policy put pressure on the Japanese currency.
Rallies above 150 have caught the Japanese government’s attention in the past, and officials last week also issued warnings about any such moves and their potential market consequences.
