Dollar stabilizes in anticipation of US data and focus on the ECB

The dollar was broadly stable near a six-week high on Thursday, as traders awaited US GDP data and other data this week for clues about where interest rates might be heading.

At the same time, the euro saw some decline ahead of the European Central Bank’s monetary policy meeting later on Thursday.

The dollar index, which measures the performance of the US currency against six other currencies, rose 0.06 percent to 103.35, which is not far from the six-week high of 103.82 that it touched on Tuesday.

Traders are strengthening their positions ahead of the monetary policy meeting of the Federal Reserve (the US central bank) next week.

According to a Reuters poll, the first reading of US GDP in the fourth quarter is likely to show annual growth of two percent, but estimates ranged between 0.8 percent and 2.8 percent.

Even if the US economy grows at the upper end of the range, this will be a marked slowdown from the 4.9 percent level recorded at the end of the third quarter in the period from July to September.

The dollar index rose about two percent this month, as traders significantly reduced their bets on the US Central Bank making early and severe cuts in interest rates after opposition from central bank officials and a large number of data that confirmed the strength of the US economy.

According to CME’s Fed Watch tool, markets currently expect a 43 percent chance of a cut in March, down from an 88 percent chance of a cut a month ago. Traders also expect a reduction of 134 basis points this year, compared to expectations of a reduction of approximately 160 basis points at the end of 2023.

The euro fell slightly, last trading at $1.0877 ahead of the European Central Bank’s monetary policy meeting, which is expected to keep interest rates steady as focus shifts to how strongly policymakers oppose expectations of sharp cuts in interest rates.

In Asia, the yuan stabilized after the Chinese central bank announced on Wednesday a significant reduction in reserves, a move that will pump about $140 billion of cash into the banking system and send a strong signal to support the fragile economy.

The yuan in external transactions rose 0.09 percent to 7.1670 to the dollar. The yuan opened in spot transactions at 7.1607 to the dollar and is trading near 7.1620.

The yen fell 0.18 percent to reach 147.77 per dollar, giving up some of its gains achieved on Wednesday, as traders took the Bank of Japan’s direction to tighten monetary policy into consideration.