On Thursday, the US dollar gained ground due to the muted impact of conflicting economic reports that suggest the Federal Reserve will postpone its initial rate reduction for a later time. New York Fed President John Williams' comments, indicating that there's no urgent need for rate cuts due to the economy's strength, further bolstered the greenback.
Concerns about the depreciation of the yen and won, expressed by top finance figures from the United States, Japan, and Korea, temporarily influenced the dollar unfavorably. However, the impact later dissipated.
The yen had gained modestly the previous day following statements from G7 finance leaders reaffirming their stance against excessive currency volatility. However, robust US economic data and persistently high inflation have led investors to revise their expectations for rate cuts significantly.
The renewed confidence in the economy was demonstrated once again on Thursday.
The Philadelphia Fed's manufacturing index reached its highest level in two years, with new orders and shipments of finished goods driving the expansion. In the meantime, the monthly business conditions index exhibited a considerable improvement, rising to 15.5 in April from the prior month's 3.2. Economists had projected an average increase, but this reading was significantly higher than both their median and optimistic predictions.
It's really hard to fight dollar strength right now. U.S. data continues to suggest that the Fed is not going to be cutting any time soon
Vassili Serebriakov
Vassili Serebriakov, a currency strategist at UBS, noted that the dollar's strength made it difficult for other currencies to challenge its dominance, as US data continue to suggest the Fed would not be cutting rates anytime soon.
The economic data unveiled on Thursday mostly failed to impress, with many reports exhibiting weakness.
The number of new jobless claims filed during the week ended April 13 was unchanged from the previous week at 212,000, while forecasts had projected a weekly increase to around 215,000. Meanwhile, in the housing sector, the sale of pre-owned homes fell by 4.3% last month, with a significant impact from mounting interest rates and escalating property prices causing hesitation among buyers.
Currency movements
The dollar index climbed 0.2% to 106.15, not far from its peak this week of 106.51, reached on Tuesday. The index has gained 4.5% so far in 2024.
The Japanese yen experienced a decline against the US dollar, causing the greenback to gain approximately 0.1%, reaching 154.580 yen. This value is close to the yen's lowest mark of 154.79, recorded on Tuesday, representing a 34-year low.
Market participants have increased their expectations for intervention by Japanese authorities to support the yen, now hovering over the 155 level, believing Japan could intervene at any time. According to Bank of Japan Governor Kazuo Ueda, another increase in interest rates could be on the table if the depreciation of the yen results in substantial inflation within Japan.
Regarding other currencies, a decrease of 0.3% occurred in the euro's exchange rate relative to the dollar, making one euro equal to approximately $1.0643.
Investors are predicting that US interest rates will decrease by 0.38% in 2024, equivalent to one and a half cuts of 25 basis points (bps) each. This marks a sharp decline from the six quarter-point easing measures implemented at the beginning of the year. Additionally, they believe the rate cuts will likely start in September. The change represents a departure from the earlier consensus that the reduction would begin in June.
As the anticipation for critical economic data releases builds up, Marc Chandler, Bannockburn Forex's chief market strategist, emphasized that investors are increasingly looking beyond these short-term indicators to assess broader market trends.
In cryptocurrencies, bitcoin experienced a notable increase of 4.4%, reaching $63,508, as investors eagerly awaited the upcoming halving event. This significant technical adjustment embedded in the bitcoin's code is responsible for reducing the production rate of newly minted coins.