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Early European Trading Reflects Dollar’s Slip
In the early hours of European trade on Monday, the U.S. dollar continued its descent, hovering near two-month lows as market participants awaited crucial U.S. inflation data for insights into the timing of potential interest rate cuts by the Federal Reserve.
Dollar Index Declines
At 04:30 ET (09:30 GMT), the Dollar Index, which measures the dollar against a basket of six major currencies, edged 0.1% lower to 102.287. This comes on the heels of a significant weekly loss of over 1% last week, dragging the index to levels not seen since mid-January.
Market Reaction to Powell’s Testimony
Last week, the dollar faced notable downward pressure following remarks from Federal Reserve Chair Jerome Powell during his congressional testimony. His comments, interpreted as dovish by the markets, hinted at the possibility of the Fed commencing interest rate cuts as early as summer.
Focus on U.S. Inflation Data
Market sentiment remains heavily influenced by mixed jobs data released on Friday, which indicated a robust increase in nonfarm payrolls alongside a rise in the unemployment rate for February. Traders are eagerly awaiting Tuesday’s release of the U.S. consumer price index, which economists anticipate will rise by 0.4% in February, building upon January’s unexpected increase of 0.3%.
Euro Strength and ECB Policy Hints
In Europe, the euro edged 0.1% higher against the dollar, reaching 1.0944. The euro’s resilience comes after hitting an eight-week high against the dollar last week, marking its most substantial weekly performance against the dollar since late December. The European Central Bank (ECB) maintained its record-high rates of 4% last week while hinting at a potential rate-cutting cycle commencing in June to bolster the region’s ailing economy.
GBP/USD Dynamics and UK Jobs Report
GBP/USD traded marginally lower at 1.2841 as traders awaited Tuesday’s release of the latest UK jobs report. Focus remains on wage growth amid speculation surrounding the timing of a potential rate cut by the Bank of England.
Asian Market Dynamics
In Asian trading, USD/JPY traded 0.3% lower at 146.70, with the yen experiencing a surge to over a one-month high in the past two sessions. This surge was supported by growing conviction that the Bank of Japan (BOJ) is nearing the conclusion of its ultra-easy monetary policy. An upward revision in GDP data for the Japanese economy in the fourth quarter provided the BOJ with additional leeway to consider tightening policy sooner rather than later.
Currency Pairs Elsewhere
USD/CNY edged lower to 7.1840, while AUD/USD fell by 0.2% to 0.6614, as market expectations for further rate hikes by the Reserve Bank of Australia waned.
