The U.S. dollar experienced a slight decline on Friday, taking a breather after five consecutive sessions of gains but still on track for a weekly increase.
Recent economic data and comments from Federal Reserve officials have tempered expectations of swift interest rate cuts.
The greenback initially strengthened during the session as economic data revealed the University of Michigan’s preliminary consumer sentiment index for this month reached 78.8, the highest level since July 2021.
This surpassed December’s reading of 69.7 and the economists’ estimate of 70.0 polled by Reuters. Earlier in the week, robust labor market and retail sales data had also indicated a resilient economy.
Expectations for a Fed rate cut in March, by at least 25 basis points, dropped below 50% according to CME’s FedWatch Tool, with May now being seen as the probable month for a rate cut announcement.
Joseph Trevisani, a senior analyst at FXStreet in New York, remarked, “The market is refusing to give up, it is pushing its ideas into the future, but it hasn’t changed its ideas.
The Fed is going to start lowering rates, and the reason they’re going to start lowering rates is that the economy is going to get weaker – this has been the mantra ever since the Fed pretty much started raising rates.”
The dollar index, which tracks the dollar against a basket of six currencies, was down 0.08% at 103.26, ending a five-session winning streak, but still up 0.8% for the week.
Several Fed officials have expressed caution regarding rapid interest rate reductions.
Chicago Fed President Austan Goolsbee stated that more inflation data is needed before making a decision on rate cuts, and Mary Daly from the Federal Reserve Bank of San Francisco emphasized that there is still much work to be done on inflation.
The euro gained 0.16% against the dollar to reach $1.0891 but ended the week down approximately 0.5%.
J.P.Morgan moved up its expectations for European Central Bank interest rate cuts to June from September, though they remained cautious about inflation and wage growth trends.
The yen remained flat against the greenback at 148.15, with the Bank of Japan expected to maintain its ultra-loose monetary settings during an upcoming policy meeting.
The dollar recorded a more than 2% gain against the Japanese currency for the week, marking its third consecutive weekly increase.
Meanwhile, sterling traded at $1.27, down 0.06% on the day, following data that showed UK retail sales slumped by the most in three years in December.
In the cryptocurrency market, bitcoin saw a 2.04% gain to reach $41,900.00.
However, it was on track for its second consecutive week of declines as investors took profits following the U.S. approval of spot bitcoin exchange-traded funds.