U.S. Dollar Gains on Hawkish Fed Comments; Euro and Sterling Weaken

In European trading on Thursday, the U.S. dollar strengthened following hawkish remarks from a Federal Reserve official, while disappointing economic data weighed on the euro and sterling.

At 05:30 ET (09:30 GMT), the Dollar Index, which measures the dollar against a basket of six other major currencies, traded 0.3% higher at 104.320, nearing its highest level since mid-February.

The dollar received a boost after Federal Reserve Governor Christopher Waller expressed caution regarding the possibility of rate cuts in the near term, citing recent disappointing inflation data. Waller’s remarks, delivered at an Economic Club of New York event on Wednesday, suggested a more restrictive stance on monetary policy to maintain inflation stability.

Analysts at ING noted that Waller’s speech may have disappointed dollar bears, as it lacked reassuring confidence on the disinflation process and further discussion on inflation data anomalies.

Market participants are awaiting additional economic indicators on Thursday, including weekly jobless claims, fourth-quarter GDP data, and Michigan consumer sentiment. However, the focus remains on Friday’s release of the Fed’s preferred inflation gauge, the core personal consumption expenditures price index.

Meanwhile, the euro slipped 0.3% against the dollar to 1.0789, nearing a five-week low. The decline followed the release of data showing a surprising 1.9% month-on-month drop in German retail sales for February, reflecting ongoing economic challenges in Europe’s largest economy.

European Central Bank officials have adopted a dovish stance, with board member Piero Cipollone suggesting potential interest rate cuts as early as June.

Similarly, the British pound fell 0.3% versus the dollar to 1.2603, following confirmation of a shallow recession in the UK economy last year. Despite a modest 0.2% monthly GDP growth in January, slowing inflation is pushing the Bank of England towards considering rate cuts.

Elsewhere, USD/JPY traded slightly higher at 151.41, after reaching 151.97 on Wednesday, its highest level since the mid-1990s. Speculation is growing regarding potential intervention by Japanese authorities to address the yen’s weakness, with the currency nearing intervention levels.

USD/CNY rose 0.1% to 7.2295, remaining above the 7.2 level despite efforts by the People’s Bank of China to bolster the yuan with a stronger-than-expected midpoint.