The U.S. dollar strengthened against major currencies on Friday, including the euro, British pound, and commodity-linked currencies like the Australian dollar. This rebound occurred as investors consolidated positions before the weekend, anticipating upcoming inflation data, and monitoring trade tariff developments.
According to Karl Schamotta, chief market strategist at Corpay in Toronto, the dollar’s recent gains represent a technical correction following a sustained sell-off. He also noted that renewed trade concerns contributed to risk aversion in other currencies.
However, the dollar’s advance moderated after S&P Global reported a decline in U.S. business activity to a 17-month low in February. Further declines followed disappointing figures from the University of Michigan sentiment report and U.S. existing home sales data.
These economic indicators reinforced expectations of potential interest rate cuts by the Federal Reserve later this year, although a pause is anticipated in the coming months. U.S. rate futures on Friday priced in 44 basis points of easing this year, up from 38 basis points on Thursday, according to LSEG calculations. LSEG data suggests the Fed could potentially resume rate cuts at either the September or October policy meeting.
Market participants are now focused on the upcoming release of the Personal Consumption Expenditures (PCE) index, the Federal Reserve’s preferred inflation gauge, due next week. This data will be crucial in confirming the central bank’s projected rate path.
The euro weakened against the dollar following business activity surveys revealing a significant contraction in France and only marginal improvement in Germany, the eurozone’s two largest economies. The euro fell 0.4% to $1.0461, its most substantial daily decline since early February.
Investors are also closely watching Sunday’s German election, where polls suggest a victory for a conservative coalition, potentially influencing expectations for future economic growth.
The dollar also appreciated against commodity-linked currencies, including the Australian, New Zealand, and Canadian dollars. However, it slightly weakened against the Swiss franc, trading at 0.8972.
In contrast to its performance against other major currencies, the dollar declined 0.4% against the yen, reaching 149.02 after touching an 11-week low of 148.93. The U.S. currency has depreciated in five of the last six weeks, experiencing a 2.2% weekly decline.
The yen’s strength stems from a sell-off in Japanese government bonds, pushing yields to their highest levels since 2009 following a 19-month high in core inflation in January. This surge in inflation has fueled expectations of potential interest rate hikes in Japan.
In conclusion, the dollar’s recent rebound reflects a combination of technical factors, renewed trade concerns, and anticipation of upcoming economic data. The release of the PCE index next week and the outcome of the German election will be critical in shaping market sentiment and influencing the dollar’s trajectory in the near term.
