The U.S. dollar strengthened slightly on Friday, marking the potential end of a five-week losing streak as investors await key inflation data. At 04:00 ET (09:00 GMT), the Dollar Index rose 0.1% to 101.314, reaching its highest level since Aug. 22. This week, the dollar is on track for a 0.6% gain, its best performance since April, attributed to positive U.S. economic indicators and GDP growth.
Dollar Outlook and Federal Reserve’s Rate-Cutting Cycle
Despite the weekly gain, the U.S. currency is expected to record a 2.5% drop for August, the worst monthly performance since November. This decline is influenced by speculations of the Federal Reserve initiating a rate-cutting cycle. Fed Chair Jerome Powell hinted at potential policy adjustments during the last week’s annual meeting, hinting at a rate cut at the upcoming policy meeting, the first in over four years. The size and pace of future cuts remain subjects of debate.
The release of the Personal Consumption Expenditures (PCE) index, the Fed’s preferred inflation gauge, is anticipated to provide more clarity on the situation.
European and Asian Market Updates
In Europe, the euro traded higher at 1.1092 against the dollar, with Eurozone inflation showing signs of cooling. Meanwhile, the British pound surged to 1.3188, near its strongest level since March 2022, boosted by expectations of higher interest rates compared to the U.S. and Eurozone.
Across Asia, the yen stabilized at 145.01, while the yuan dipped to 7.0907, its lowest level since late December. The Bank of Japan’s core inflation data exceeded expectations, indicating a potential increase in interest rates. In China, news of refinancing $5.4 trillion of mortgages provided support to the yuan and Chinese markets.
Overall, the global currency markets are reacting to central bank policies, economic indicators, and geopolitical developments, shaping investment decisions and market trends.