Rate Cut Hopes Fade, Dollar Remains in Control
The US dollar fell slightly on Friday, but remained on track for a third straight weekly gain after a string of stronger US data reinforced market confidence that the Fed didn't need to rush to cut interest rates. The Dollar Index (DXY) edged down 0.1% to 99.1, but was still on track to rise by around 0.2% for the week.
The dollar's main support came from labor data: US initial jobless claims unexpectedly fell to 198,000, well below the 215,000 forecast—a signal that the job market remains resilient. This prompted market participants to shift the timing of the first interest rate cut to mid-year, as room for easing was not considered urgent as long as inflation remained subdued.
Fed officials also maintained expectations of a "longer hold." Chicago Fed President Austan Goolsbee emphasized that the primary focus remains on returning inflation to 2%, while Kansas City Fed President Jeff Schmid called inflation "too high." On the other hand, San Francisco Fed President Mary Daly assessed that the upcoming US data series looks quite promising—making the market increasingly comfortable with the scenario of high interest rates remaining for longer.
In Europe, currency movements were relatively limited. EUR/USD strengthened slightly to around 1.1613 after data showed German inflation in December was unchanged on a monthly basis and rose around 1.8% on an annual basis—slightly below the ECB's medium-term target. GBP/USD also rose slightly to around 1.3390.
Meanwhile, in Asia, USD/JPY fell to around 158.2 as the yen strengthened slightly from its weakest level in almost 18 months. The yen's strengthening was helped by a verbal warning from Japanese authorities; Finance Minister Satsuki Katayama emphasized that Tokyo "is not ruling out any options" to curb the yen's weakness, including the possibility of intervention—even in coordination with Washington if necessary.
Source: Newsmaker.id
