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Analysts Reflect on the Weakening Dollar
During its second consecutive session of decline, the US dollar fell, in spite of a strong, albeit mixed, batch of economic data. Analysts believe this trend is unlikely to hinder the projected interest rate cuts by the Federal Reserve by June, marking the first cut since the Coronavirus pandemic.
Dollar Devaluation and International Impact
The US dollar index was down by 0.4% at a ranking of 104.28. Concurrently, the dollar softened by 0.4% against the yen, reaching a value of 149.92.
Traders are carefully monitoring the dollar-yen situation as it recently peaked at 150, a significant milestone that might prompt Japanese authorities to depreciate their currency. It's worth noting that the yen's value strengthened despite Japan reporting lower than anticipated gross domestic product (GDP) figures, causing it to cede its position as the third largest global economy to Germany.
US Economic Data Reflects Mixed Scenarios
In the US, data indicated a larger than anticipated drop of 0.8% in unadjusted inflation retail sales for January, compared to the expected 0.1% decline. This decrease is likely attributable to the impact of winter storms.
Despite the January dip in unadjusted retail sales being a consistent pattern, economists beforehand warned against over-analyzing any abrupt declines.
Brad Bechtel, Jefferies' global head of FX in New York, believes that nothing much has changed and that the market is still focused on the everyday data. Bechtel emphasized that the dollar's recent consolidation followed an extended period of strength where it gained over 5% annually.
Unemployment Claims, Manufacturing Indices, and the Dollar
A report revealed that initial claims for state unemployment benefits experienced an 8,000 drop, reaching a seasonally-adjusted figure of 212,000 for the week ending on Feb. 10. This is further proof of the tight labor market conditions in the U.S.
Additional data showed a weaker than forecasted dip of 0.1% in the US industrial production for last month, its lowest since October. Nonetheless, both the Empire State and the Philadelphia Fed manufacturing indices displayed considerable improvement.
Stances against the Strong Dollar
Despite these positive results, the dollar faltered again. Against the Swiss franc, the dollar weakened by 0.6% to 0.8798 francs. Similarly, the Euro and Sterling gained 0.4% and 0.3%, respectively against the dollar.
Thierry Albert Wizman of Macquarie in New York suggested that the dollar's retreat is temporary and that its momentum would not falter as long as the US continues to outperform globally. He predicted that the dollar's strength will uphold and might even augment further.
As per LSEG's rate probability app, the Federal funds futures market has predicted an 83% probability of the first rate easing to occur in June. Moreover, the app has estimated between three to four rate cuts this year, dropping from five predicted just weeks prior.
