The U.S. dollar experienced a minor retreat on Friday morning trading but was positioned to secure its third consecutive weekly gain. At 04:05 ET (09:05 GMT), the Dollar Index, which gauges the greenback against a basket of six major currencies, declined marginally by 0.1% to 99.095. Despite this dip, the dollar was slated for a weekly increase of around 0.2%, underscoring continued strength in the currency.
This advance follows the release of positive U.S. economic data that surpassed market expectations and contributed to the dollar's appeal. The initial jobless claims decreased unexpectedly to 198,000 last week, well below the anticipated 215,000, signaling ongoing resilience in the U.S. labor market. Such figures have influenced investors' perceptions, leading them to anticipate that the Federal Reserve will maintain current policy rates for an extended period rather than implementing early cuts.
As a result, traders have pushed back forecasts for the Fed's initial rate reduction, now expecting it around mid-year. Analysts at ING described the currency's recent gains as reflective of broader macroeconomic trends, citing firm retail sales data and favorable jobless claims. They also pointed to the Federal Reserve’s Beige Book, which depicted a gradually expanding economy without immediate labor market threats, further supporting a restrained monetary policy approach.
Additional caution was echoed by Federal Reserve officials through overnight remarks. Chicago Fed President Austan Goolsbee emphasized the importance of focusing on reducing inflation amid conditions of labor market stability. Likewise, Kansas City Fed President Jeff Schmid referred to inflation as "too hot," while San Francisco Fed President Mary Daly found recent U.S. economic indicators encouraging. ING noted the absence of significant data releases on the current day, reinforcing the mild upward momentum of the dollar.
In Europe, the euro gained slightly against the dollar, moving to 1.1613 in USD/EUR trading. This followed data revealing that German consumer prices remained steady in December, registering a modest year-over-year increase of 1.8%, which is below the European Central Bank's (ECB) 2.0% inflation target. The ECB has paused interest rate changes since concluding a rapid hike cycle in June, signaling no urgency for policy adjustments given robust economic growth and easing inflation pressures.
ING analysts anticipate a quiet trading environment for the euro, with the EUR/USD currency pair likely to drift toward the 1.1555-1.1565 range without significant volatility. Meanwhile, GBP/USD experienced a modest 0.1% increase, reaching 1.3392.
In Asian currency markets, the Japanese yen rebounded slightly, with USD/JPY retreating by 0.3% to 158.19. This pullback reflects intervention signals from Japanese officials aiming to mitigate rapid yen depreciation. Japanese Finance Minister Satsuki Katayama indicated that Tokyo remains open to employing all available measures, including coordinated efforts with the United States, to address yen weakness.
ING commented on the likely volatility in USD/JPY over the upcoming month, noting that current implied volatility levels do not appear overvalued. Other regional currencies showed slight movements: USD/CNY climbed 0.1% to 6.9681, AUD/USD rose 0.1% to 0.6704, and NZD/USD advanced 0.3% to 0.5760.