In early European trade today, the U.S. dollar experienced a marginal decline as investors awaited crucial growth data, while the British pound continued its descent following a notable drop in UK inflation.
At 04:30 ET (09:30 GMT), the Dollar Index, which measures the greenback against a basket of six other major currencies, traded 0.1% lower at 102.010. The index has seen a nearly 2% decrease so far this year.
Treasury yields in the United States reached a seven-month low of 3.847% overnight, impacting the dollar’s value. Despite efforts by several Federal Reserve officials to manage expectations for multiple U.S. interest rate cuts in 2024, traders are pricing in the possibility that rate cuts could occur as early as March.
Thursday brings several significant data releases, including weekly jobless claims, the Philadelphia Fed manufacturing index, and the latest reading of quarterly gross domestic product growth—a key indicator for market sentiment.
The core Personal Consumption Expenditures price index, the Federal Reserve’s preferred measure of inflation, is scheduled for release on Friday. It is anticipated to reveal whether inflation has slowed sufficiently for the Fed to consider easing policy in the coming year.
Meanwhile, the British pound continued its decline, falling 0.2% against the U.S. dollar to 1.2618. This follows Wednesday’s release of data indicating a sharp drop in UK inflation to its lowest level since September 2021. Additionally, Britain reported a higher-than-expected budget deficit of £14.3 billion ($18.1 billion) for November, highlighting the limited fiscal room for pre-election tax cuts by Prime Minister Rishi Sunak’s government.
EUR/USD remained relatively stable at 1.0938. Traders are anticipating several rate cuts from the European Central Bank in the next year, with potential initial moves in the first quarter, following a decline in eurozone inflation to 2.4% in November, nearing the central bank’s 2% medium-term target.
In other currency news, USD/JPY traded 0.3% lower at 143.16 as the Japanese yen recovered from earlier steep losses incurred after the Bank of Japan maintained its ultra-dovish stance. The focus for the week in Japan is on the consumer price index inflation due on Friday.
USD/CNY traded 0.2% higher at 7.1467, with the yuan weakening as the People’s Bank of China left its loan prime rate unchanged at record lows. Market participants are closely monitoring these currency movements amid global economic uncertainties.