2024-02-22 11:00:00
Graphic dollar index at intervals of 15 minutes
The dollar fell on Thursday as stock markets hitting record highs fueled optimism across asset classes and traders reacted to a slew of business activity surveys that were largely better than expected as they looked for implications of the fresh data for the outlook for interest rates.
The preliminary purchasing managers’ index (PMI) showed that the euro zone’s contraction in business activity eased in February as the services sector, which had contracted for six months, broke a bad streak. This was offset by deterioration in manufacturing.
The euro rose 0.34% to $1.0856 after strong business activity data in France. However, it fell after disappointing data for Germany.
Sterling rose 0.3% after British PMI data showed the economy continued to gain momentum from the start of 2024, while the yen remained steady at 150.26 yen per dollar. As a result, the dollar index, which tracks the greenback against six major currencies, fell 0.3%.
It is expected to fall nearly 0.6% this week, which would be its first weekly decline in 2024 if it holds.
General optimism in markets is also weighing on the dollar, which has sometimes benefited from market nervousness. Japanese and European stock indexes hit record highs on Thursday, with the Nikkei index topping its highest since 1989.
However, the dollar index is up more than 2% this year as traders scale back aggressive expectations for a rate cut by the Federal Reserve, which in turn supports the dollar. US business activity data will be released later in the day.
“The dollar has come a long way, the market has taken a breath and is reluctant to add to its long positions at the moment,” said Jane Foley, head of FX strategy at Rabobank. “What could potentially change the situation is if we see further intensification of the debate on US interest rates and whether June (for the first rate cut) is realistic. The next round of US data will be important. We continue to believe that the dollar can find a second wind.”
The risk-sensitive Australian dollar rose 0.5% to $0.6584. However, the traditional safe-haven currency, the Swiss franc, also strengthened, with the franc down 0.26% to 0.876. Minutes from the Federal Reserve’s latest meeting released on Wednesday confirmed reports that the central bank is in no hurry to cut interest rates.
Officials still expect them to begin declining this year. Traders currently estimate the likelihood of the Fed cutting interest rates in May at 30%. This is a significant decline from an estimate of more than 80% a month ago.
The revaluation follows a series of recent data showing U.S. producer and consumer prices rose more than expected in January. In addition, the labor market in the country shows stable dynamics.
The New Zealand dollar hit a more than one-month high of $0.6218. The Reserve Bank of New Zealand (RBNZ) meets next week and while economists generally expect the bank to keep its cash rate at 5.5%, some see the risk of a hike, which has provided some support for the New Zealand dollar.
If there is a rate hike in New Zealand, the market will focus on the argument: “New Zealand has weak data, but they are raising rates anyway, and the Fed has strong data, so they will cut rates,” Foley said.
Prepared by ProFinance.Ru according to materials Thomson Reuters
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