Forex
US dollar up slightly after GDP data; euro falls after ECB, Lagarde comments
© Reuters. FILE PHOTO: Woman holds U.S. dollar banknotes in front of Euro banknotes in this illustration taken May 30, 2022. REUTERS/Dado Ruvic/Illustration/File Photo
By Gertrude Chavez-Dreyfuss
NEW YORK (Reuters) -The U.S. dollar edged higher on Thursday after data showed the world’s largest economy grew at a faster pace than expected in the fourth quarter, suggesting the Federal Reserve would be in no rush to cut interest rates amid a generally stable economy.
The , a gauge of the greenback’s value versus six major currencies, was last up 0.1% at 103.37 ().
The euro, on the other hand, fell against the dollar, after mixed comments from European Central Bank President Christine Lagarde. She said it was “premature to discuss rate cuts” for the euro zone economy, but noted that the risks to economic growth remain “tilted to the downside.”
The ECB, at its policy meeting on Thursday, left borrowing costs unchanged.
The single euro zone currency last traded at $1.0863, down 0.2%.
In the United States, the Bureau of Economic Analysis’s advance GDP estimate showed that gross domestic product in the last quarter increased at a 3.3% annualized rate, compared with the consensus forecasts of growth at a 2.0% rate.
“It’s only fitting that a year that defied expectations would show growth that exceeded expectations. You have to squint to see weakness in the numbers,” said Brian Jacobsen, chief economist, at Annex Wealth Management, at Menomonee Falls, Wisconsin.
“What’s not to like? The problem for the market is that the Fed doesn’t have to be in a hurry to cut. Rather than cutting sooner and faster, the Fed can cut later and slower.”
Post-data, U.S. rate futures market priced in a roughly 47% chance of easing at the March meeting, up from late Wednesday’s 40% probability and the 80% chance factored in two weeks ago, according to LSEG’s rate probability app.
The market is pricing in the first rate cut to occur at the May meeting with a 91% probability.
Next week, the Fed is widely expected to stand pat but comments from Chair Jerome Powell will be intensely scrutinized to assess if the U.S. central bank is ready to start cutting interest rates.
For the ECB, investors priced in rate cuts of 130 basis points (bps) in 2024, roughly in line with the level seen before the ECB statement. They were discounting 150 bps in mid-January.
Aside from GDP data, a separate report from the Labor Department showed that initial claims for state unemployment benefits increased 25,000 to a seasonally-adjusted 214,000 for the week ended Jan. 20. Economists had forecast 200,000 claims in the latest week.
Its market impact was muted though given the release of the GDP data.
In other currency pairs, the dollar slid 0.2% versus the yen to 147.22.
Sterling was slightly down at $1.2717.
The People’s Bank of China (PBoC) responded to increasing demand for the US dollar by adjusting its cross-border macroprudential parameter.
The central bank’s decision to raise the parameter from 1.50 to 1.75 allows domestic corporations and financial institutions to engage in more cross-border borrowing.
The adjustment came as the foreign exchange settlement balance for banks’ clients showed a deficit of $10.5 billion, marking the first negative reading since July 2024. This deficit contrasts with the previous month’s figures. The rise in demand for the US dollar was particularly noticeable in service trade transactions.
Recent weeks have seen domestic importers actively purchasing US dollars through foreign exchange forwards. This move is a strategy to hedge against potential risks associated with tariffs, which has contributed to an upward push on forward points.
The PBoC’s policy change on January 13 reflects efforts to manage market expectations regarding foreign exchange rates.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
On Wednesday, Macquarie analysts provided insights into the potential future movements of the Canadian dollar (CAD) against the US dollar (USD).
They indicated that the fears of heavy-handed US import tariffs are unlikely to materialize immediately after the inauguration, suggesting that the USD’s rally against the EUR, CAD, and other currencies might not extend beyond the first quarter of the year.
The analysts highlighted that despite the initial threats of tariffs, Canada is expected to grow even closer to the United States in the coming years. This projection is based on several factors including Canada’s domestic politics, foreign policy, border and immigration policies, as well as trade and capital account flows, all of which demonstrate aligned interests with the US. The anticipated renegotiation of the United States-Mexico-Canada Agreement (USMCA) is expected to cement this relationship further.
According to Macquarie, this closer relationship between Canada and the US will lead to a much more stable exchange rate in the future. They predict that as a result of these developments, the USD/CAD pair will experience a downward drift, potentially reaching a mid-year target of 1.35.
The stability in the USD/CAD exchange rate is seen as a reflection of the ‘merger trend’ context, where the two economies continue to integrate and align, leading to less exchange rate fluctuation. Macquarie’s analysis projects a calmer period ahead for the currency pair, which has historically been influenced by trade policies and geopolitical factors.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
Investing.com – The US dollar lifted slightly Thursday, but remained in a tight trading range ahead of a speech by President Donald Trump at the World Economic Forum.
At 04:15 ET (09:15 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% higher to 108.150, after starting the week with a drop of over 1%.
Dollar treads water
The dollar has largely treaded water over the last couple of days as traders await more clarity over President Donald Trump’s plans for tariffs, following the sharp fall on Monday as his first day in office brought a barrage of executive orders, but none on tariffs.
He has subsequently talked about levies of around 25% on Canada and Mexico and 10% on China from Feb. 1, as well as mentioning duties on European imports, but without concrete action.
Trump speaks later in the session at the World Economic Forum in Davos, Switzerland, and traders are eagerly awaiting any comments on this topic as well as for his position on major geopolitical and economic issues such as the Ukraine-Russia war and the economic rivalry with China.
“This week’s dollar correction has not gone too far. Despite the heavy one-way positioning of the dollar, investors lack clarity on the timing of Trump’s tariff threats, preventing them from reducing dollar holdings,” said analysts at ING, in a note.
Also causing traders to pause for breath is the spate of central bank policy decisions due over the next week, including the on Friday, ahead of the and the next week.
Euro lower ahead of ECB meeting
In Europe, slipped 0.1% lower to 1.0404, with the single currency weak ahead of next week’s ECB meeting, with an interest rate cut largely seen as a done deal.
“This week’s EUR/USD bounce has been pretty muted so far,” said ING. “There is no way investors can expect to hear an ‘all-clear’ signal on tariffs. And keeping trading partners off balance/guessing is a tactic that kept the dollar reasonably well bid during Trump’s last tariff regime in 2018-19.”
traded 0.1% lower to 1.2304, while rose 0.2% to 11.3035 ahead of a policy-setting meeting by the later in the session.
“Norges Bank is widely expected to keep rates on hold today,” ING said. “On the whole, the key variables monitored by NB have not clearly argued a rate cut should be pushed beyond March. Also, the risks to global growth related to Trump’s protectionism plans should encourage policymakers to allow some breathing room with a rate cut before the end of the first quarter.”
BOJ meeting to conclude Friday
In Asia, traded largely unchanged at 156.47, ahead of the Bank of Japan’s two-day policy meeting, which concludes on Friday.
The BoJ is widely expected to raise interest rates as recent inflation and wage data have been encouraging, and the central bank is likely to signal further interest rate hikes if the economy maintains its recovery
traded 0.2% higher to 7.2877, with the Chinese currency weaker on fears Trump will confirm US tariffs on Chinese imports, hitting the second largest economy in the world.
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