On Friday morning, the U.S. dollar recorded a marginal dip, trading at 99.095 on the Dollar Index by 04:05 ET (09:05 GMT), slightly down 0.1%. Despite this, the currency is set to finish the week with a 0.2% increase, marking its third straight weekly gain. The Dollar Index measures the greenback against a basket of six leading global currencies.
The upward trend for the dollar comes on the heels of unexpectedly strong U.S. economic data released earlier this week. Key among these was the initial jobless claims figure, which fell to 198,000—significantly beneath the projected 215,000. This underscores ongoing strength in the labor market and contributed to revised market sentiment that diminishes the likelihood of imminent Federal Reserve rate cuts.
Market participants have pushed expectations for the first interest rate reduction by the Fed to the middle of the year, given the sturdy economic backdrop. Analysts from ING described the dollar's recent appreciation as a reflection of a "macro move" driven by firm U.S. data points, including retail sales and employment claims. The Fed's Beige Book further characterized the economy as gently expanding with a stable jobs market, reinforcing caution among investors.
Contributing to the cautious tone were remarks from various Federal Reserve officials. Chicago Fed President Austan Goolsbee emphasized the priority of reducing inflation given stable employment conditions. Meanwhile, Kansas City Fed President Jeff Schmid characterized inflation as "too hot," and San Francisco Fed President Mary Daly highlighted promising economic data trends.
With few economic reports due imminently, ING analysts indicated there is little reason for the dollar’s gentle firmness to be challenged at present.
Within European markets, the euro edged higher, trading at 1.1613 against the dollar. This came on the back of December German consumer price data showing no monthly change and a modest 1.8% annual increase, which remains under the European Central Bank’s 2% inflation objective. The ECB has maintained steady interest rates since concluding a rapid cutting phase in June, signaling a patient approach amid unexpectedly robust economic growth and subdued inflation pressures.
ING anticipated that, given an uneventful eurozone economic calendar, the EUR/USD rate may gradually drift towards the 1.1555 to 1.1565 range without significant market upheaval. Separately, the British pound modestly advanced by 0.1%, reaching 1.3392 against the dollar.
Turning to Asia, the Japanese yen experienced a slight rebound, pushing USD/JPY down 0.3% to 158.19 after falling to levels not seen in approximately 18 months. This movement followed verbal interventions by Japanese authorities who expressed readiness to act against rapid yen depreciation. Finance Minister Satsuki Katayama stated Tokyo does not exclude any strategies, including coordinated efforts with Washington, to address the currency's weakness.
ING highlighted the expected volatility of the USD/JPY pair over the coming month, noting that volatility levels remain relatively inexpensive despite significant price swings. Additional movements included a 0.1% uptick in USD/CNY to 6.9681, a 0.1% gain in AUD/USD reaching 0.6704, and a 0.3% rise in NZD/USD to 0.5760.