Hawkish Fedspeak Came To The Dollar's Rescue Last Week

(RTTNews) - A Fed narrative that focused on scaling back rate cut expectations helped the U.S. Dollar trade firm during the week spanning February 5 to February 9. The Dollar Index, a measure of the Dollar's relative strength against a basket of 6 currencies recorded a mild uptick during the week. While the U.S. Dollar gained against the euro, the British Pound as well as the Japanese Yen, it failed to rise against the Australian Dollar.

The Dollar Index increased 0.18 percent during the week ended February 9, closing at 104.11, versus 103.92 a week earlier. The Index traded between the 11-week high of 104.60 recorded on Monday and the low of 103.94 touched on Wednesday.

Data released on Monday reaffirmed the strength of the U.S. economy, with the services PMI jumping to 53.4 in January, from 50.5 in the previous month, surpassing market expectations of a reading of 52. The strong data, close on the heels of the strong jobs report in the previous week cast doubts on the Fed opting for early rate cuts, supporting the greenback.

Robust labor market data released on Thursday that revealed the number of people claiming unemployment benefits in the U.S. dropping to 218 thousand in the week ended February 3, versus 227 thousand in the prior week, also benefited the Dollar.

The rise in U.S. bond yields amidst Fed Chair Jerome Powell's comments that reinforced the overwhelming Fed narrative against pre-mature rate cuts, also supported the Dollar.

The EUR/USD pair edged down during the week ended February 9, as a weak eurozone economy weighed on the common currency. Data released during the week had shown a larger-than-expected decline in exports from Germany, a larger-than-expected contraction in the currency bloc's services activity, a more-than-expected drop in retail sales in the Euro Area and a sharp slowdown in consumer price inflation in Germany. The pair climbed from the low of 1.0723 recorded on Monday to the high of 1.0796 on Friday. The pair eventually closed the week at 1.0782, versus 1.0784 a week earlier.

The GBP/USD pair also slipped 0.09 percent during the week ended February 9. Data released on Monday had shown Services PMI rising to 54.3 in January, from 53.4 in December, whereas Retail sales rose 1.4 percent, lower than the 1.9 percent gain in December. The day also witnessed comments by Bank of England's Chief Economist Huw Pill who said that the question for most of the central bank's policymakers was when it would be appropriate to begin to cut interest rates and not whether it was appropriate. Amidst a mixed sentiment and the resultant whipsawing prices, the pair recorded the week's high of 1.2644 as well as the week's low of 1.2517, both on Monday. The pound closed at $1.2619 on February 9, versus $1.2630 a week earlier.

The Australian Dollar rallied 0.17 percent against the U.S. Dollar during the week ended February 9, amidst a widely expected pause by the Reserve Bank of Australia. RBA kept its cash rates unchanged at 4.35 percent, while also warning that further monetary tightening could not be ruled out. Despite the easing in cost pressures in the country, the central bank continued to be concerned about inflation remaining high, amidst prices of services that were not falling quickly enough. During the week spanning February 5 to 9, the AUD/USD pair jumped to 0.6523, from 0.6512 a week earlier. The pair touched the week's low of 0.6468 on Monday and the week's high of 0.6542 on Wednesday.

Amidst the yen's weakness triggered by dovish comments by a Bank of Japan official, the USD/JPY pair rose to 149.30 on February 9, from 148.37 a week earlier. BoJ Deputy Governor Shinichi Uchida had recently stated that aggressive tightening was unlikely even after an exit from negative interest rate policy. The pair's trading range was wider, between the low of 147.63 recorded on Wednesday and the high of 149.60 recorded on Friday.

Despite markets anticipating a cooling in the January consumer price inflation readings from the U.S. due on Tuesday, the Dollar Index has edged up to 104.12. Amidst the dollar's strength, attributed to markets bracing to the likelihood of a slower-than-expected monetary policy pivot by the Federal Reserve, the EUR/USD pair has fallen to 1.0773 and the GBP/USD pair is at 1.2628. Unemployment, inflation and GDP data due from the U.K. in the current week are seen strongly swaying the pound's trajectory. Amidst indications of deepening disinflation in China, the AUD/USD pair is currently trading at 0.6536. Ahead of the fourth quarter GDP readings from Japan, the USD/JPY pair is hovering near 149.38.