Monday saw a little increase in the value of the forex dollar as the start of a potentially busy week was muted by holidays in most major Asian markets. All eyes were on U.S. inflation statistics for signals about when the Federal Reserve would begin reducing interest rates reported from Reuters
The euro was down 0.14% at $1.0769, easing off a 10-day high that was briefly achieved in early trade. The previous week had seen a slight recovery after consistent drops in 2024. On Wednesday, a report of the fourth-quarter economic growth in the euro zone may provide new guidance.
The Japanese yen slightly appreciated to 149.01 per dollar as the coming release of U.S. CPI data for January on Tuesday limited movements, but the pound fell 0.1% to $1.2632.
The dollar index, which measures the U.S. currency against a basket of six other currencies, rose by 0.25% to 104.23. Market sentiment suggests that the upcoming release of the consumer price index (CPI) for January could give the Federal Reserve more confidence that inflation is moving towards its target of 2%.
Looking forward to Thursday, retail sales data for the previous month is expected to confirm the trend of slowing inflation, which could limit the recent increase in Treasury yields and the strength of the dollar, according to Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.Chandler stated, ‘Weak CPI and retail sales data should strengthen the Fed’s belief that inflation is approaching its target,’ emphasizing that Fed Chair Jerome Powell closely monitors such data to assess the inflation outlook. He further commented, ‘This week’s data should increase his confidence.’
In currency markets, the euro declined by 0.22% to $1.07595, with trading activity relatively quiet due to a holiday in major Asian markets. The euro retreated from a 10-day high reached earlier in the session after a modest recovery last week following a sustained decline in 2024. Attention now shifts to Wednesday’s release of fourth-quarter economic growth data for the eurozone.
Expectations about the timing and pace of interest rate adjustments by central banks amid decreasing inflation are significant drivers in currency markets. Recent strong employment figures have reduced expectations of a Fed rate cut in March, with some viewing a move in May as more likely.
U.S. data releases have also influenced market sentiment regarding potential rate cuts by the European Central Bank (ECB), despite weaker economic indicators in Europe. This alignment in monetary policy between the Fed and other central banks, including the ECB, has kept the dollar within a relatively narrow trading range, according to Simon Harvey, head of Forex analysis for Monex Europe.