The US dollar has strengthened against major currencies as inflation slows, reducing expectations of Federal Reserve rate cuts. The dollar rose to a three-month high after US consumer price index (CPI) figures for January showed a 3.1 percent gain from a year earlier, higher than the expected 2.9 percent rise. As a result, money markets have priced in no Fed rate cut in March and a 53 percent chance of a cut in June. This has led to increased dollar strength and reduced the likelihood of rate cuts by the Swiss National Bank (SNB) and the European Central Bank (ECB) before the Fed’s easing cycle begins.
In the UK, the dollar rose against the British pound following data that showed UK inflation did not accelerate as expected in January. UK inflation remained at an annual rate of 4.0 percent, unchanged from December and below economists’ forecast of 4.2 percent. This may relieve some pressure on the Bank of England (BoE) to keep interest rates unchanged for longer. Money markets now see a 51 percent chance of a BoE rate cut in June and a 75 percent chance of one in August.
Meanwhile, the dollar weakened against the yen after Japanese currency officials warned against rapid and speculative movements. The Finance Minister stated that rapid moves are undesirable for the economy but did not comment on possible intervention in the currency market. The dollar fell 0.1 percent against the yen to 150.60, not too far from a three-month high reached earlier.
In other news, the euro was little affected by eurozone economic data, remaining down 0.06 percent at $1.0702. Eurozone employment rose by 0.3 percent quarter-on-quarter and by 1.3 percent year-on-year in the fourth quarter, surpassing expectations. Economic growth in the region was flat in the last quarter of 2023 compared to the previous quarter and up 0.1 percent compared to the same period in 2022.
Finally, the leading cryptocurrency bitcoin rose by 3.1 percent to $51,230, trading near its highest level since late December 2021. It has surged 34 percent from a low on January 23, indicating strong investor interest in the digital asset.
Overall, the US dollar has experienced strength due to lower expectations of Fed rate cuts, while the British pound and the euro have seen mixed performance based on inflation and economic data. The Japanese yen remains a significant factor to watch, with officials warning against rapid movements and potential intervention in the currency market. Additionally, bitcoin continues to show resilience and upward momentum in the cryptocurrency market.
