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The Dollar's decline continued in the last week of 2023 amidst rate cut bets that were reinforced with the better-than-expected PCE-based inflation readings. The U.S. Dollar slipped against the euro, the British pound, the Australian Dollar as well as the Japanese yen amidst thin holiday trading.
Anticipation of Fed rate cuts continued to be the dominant theme driving sentiment across markets during the week ended December 29.
The Dollar Index recorded a weekly decline of 0.31 percent, dropping to 101.38 on December 29, from 101.70 on December 22 as markets digested the better-than-expected PCE reading. Data released on December 22 had shown the annual PCE inflation rate in the U.S. cooling to 2.6 percent in November. The reading which was the lowest since February 2021 contrasted with a downwardly revised 2.9 percent in the previous month, and below forecasts of 2.8 percent.
The index touched the week's high of 101.77 on Tuesday and the week's low of 100.62 on Thursday. The weekly labor market update which showed the number of Americans filing for unemployment benefits rising to 218 thousand in the week ending December 23 also added to the Dollar's weakness. Markets had expected a reading of 210 thousand.
The EUR/USD pair gained 0.25 percent during the week ended December 29, rising to a multi-month high amidst a soft dollar. From the closing level of 1.1010 on December 22, the pair increased to 1.1037 by close of December 29. The euro's trading range in the last week of 2023 was between $1.0993 and $1.1141.
The British pound too gained around a quarter percent against the U.S. Dollar during the week ended December 29 amidst uncertainty over whether the Bank of England would wait longer than its peers for a monetary policy pivot.
The GBP/USD pair which closed at 1.2700 on December 22 rose to 1.2732 by December 29 as anticipation of Fed rate cuts increased. Trading in the week ranged between the low of 1.2682 and the high of 1.2829.
Amidst the greenback's weakness triggered by renewed rate cut bets, the Australian Dollar too gained more than 0.20 percent against the U.S. Dollar. The Australian Dollar which was at $0.6799 on December 22 increased to $0.6813 during the week ended December 29. The week's trading range was wider, between the low of $0.6773 and the high of $0.6873.
The Japanese yen surged ahead against the U.S. Dollar during the week ended December 29 amidst rate hike signaling by the Bank of Japan Governor. The governor had stated that the chance of moving short-term interest rates out of negative territory next year was not zero. The yen's strength dragged the USD/JPY pair from the week's high of 142.85 recorded on Wednesday to the week's low of 140.25 on Thursday. The pair slipped 0.96 percent during the week, falling to 141.04 from 142.41 a week earlier. Data released during the week had shown the unemployment rate in November steady at 2.5 percent, in line with market expectations. Meanwhile, the central bank's Summary of Opinions released during the week revealed mixed sentiment of caution about raising interest rates, as well as the need to prepare the ground for a future exit.
Currency market sentiment remains muted ahead of key economic data updates. Due for release on Wednesday from the U.S. are the ISM Manufacturing PMI, JOLTs Job Openings report and the minutes of the recent FOMC. The ISM Services PMI reading from the U.S. is due on Thursday.
Preliminary inflation readings for December are due from France and Germany on Thursday, and from the Euro Area on Friday. However, the spotlight is on the December non-farm payrolls reading due from the U.S. on Friday. Markets expect the addition to non-farm payrolls to cool down to 163 thousand in December, from 199 thousand a month earlier.
Amidst the uncertainty and anxiety, the Dollar Index has increased to 101.97. The EUR/USD pair dropped to 1.0967 whereas the GBP/USD pair slipped to 1.2658. The AUD/USD pair is at 0.6792. The USD/JPY pair has in the meanwhile increased to 142.13.
