Dollar Holds Gains as Euro Stumbles, Yen Strengthens
The dollar maintained most of its gains from last week, where it experienced its largest weekly rise against major currencies since July. This surge put an end to the declines seen in late 2023. On Monday, the euro remained relatively unchanged at $1.0934 after experiencing a 0.9 percent fall last week, which abruptly halted its recent rally. The yen, on the other hand, strengthened slightly to 144.5 per dollar, having weakened significantly from 140.8 per dollar at the beginning of the year.
The dollar index, which tracks the greenback against six other currencies, stood at 102.53. It gained 1 percent last week, marking its most significant increase in six months. This rise was driven by data showing a sharp slowdown in global inflation, leading to expectations of central bank rate cuts, particularly by the Federal Reserve. As a result, equities rallied.
Typically, higher equity prices and lower U.S. Treasury yields are unfavorable for the dollar. However, Simon Harvey, head of FX analysis at Monex Europe, noted that there has been some market “indigestion” since the start of the year. Many had anticipated aggressive easing policies from the Fed and improved growth conditions worldwide, leading to a belief that buying equities would be profitable. However, this optimistic outlook has been met with a reality check.
Currently, markets are pricing in a roughly 60 percent chance of a Federal Reserve interest rate cut in March, down from about 90 percent at the end of December. The upcoming U.S. inflation reading on Thursday could potentially alter these views once again. Recent data showed that U.S. employers hired more workers than expected in December and increased wages at a solid pace, indicating a resilient labor market. However, a separate survey revealed that the U.S. services sector experienced a significant slowdown last month, with employment reaching its lowest level in nearly 3.5 years. This paints a mixed picture of the world’s largest economy.
In other currency news, sterling lost 0.24 percent, settling at $1.2688, while the Australian dollar fell 0.27 percent to $0.66955. Both currencies are sensitive to changes in global market sentiment, particularly in stocks, which were trading lower. The Swiss franc also weakened slightly to $0.8505 per dollar.
By Rae Wee and Alun John
