Dollar Strengthens Amid Declining Rate Cut Odds

The dollar rose in European trade on Friday against a basket of major rivals, maintaining gains for the fourth straight session near six-week highs as the odds of a June Fed interest rate cut decline.

Now investors await important US personal spending data later today, in addition to Fed Chair Jerome Powell’s speech.

Greenback's Quarterly Profit

The greenback is heading for the biggest quarterly profit since 2022, as pricing for a 0.25% Fed interest rate cut in June drops.

A string of strong US data in recent days in addition to bullish remarks by Fed officials will likely nudge the Fed towards holding interest rates unchanged for an extended duration.

The Index

• The dollar index rose 0.1% to 104.67, with a session-low at 104.51.
• The index rose 0.25% on Thursday, the third profit in a row, scaling a six-week high at 104.73 following US growth data.

Waller's Remarks

Federal Reserve member Christopher Waller said on Wednesday that there’s no rush to cut interest rates, and that he wants to see at least two months of low inflation data before cutting rates.

He added that recent US data could delay the number of expected US interest rate cuts this year.

US Rate Prospects

• Earlier US data showed GDP growth at 3.4% in the fourth quarter of 2023, beating estimates of 3.2%.

Following the excellent data, the odds of a 0.25% Fed interest rate cut fell from 63% to 59%.

Quarterly Trades

The dollar index is up 3.25% so far this quarter on track for the third quarterly profit in the last three quarters.

The gains are underpinned by increasing bullish remarks by Fed officials following upbeat economic data.

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Euro Decline Amid Holiday Thin Trading

Euro declined in European trade on Friday against a basket of major rivals, sharpening losses for the fourth straight session against the dollar and plumbing five-week lows amid thin trading due to the Good Friday holiday.

Euro Heading for Quarterly Loss

Euro is heading for a quarterly loss, the second in the three quarters due to concerns about the widening policy gap between Europe and the US.

EUR/USD

• EUR/USD fell 0.2% to 1.0769, the lowest since February 20, after losing 0.4% on Thursday, the third loss in a row following positive US data.

Bearish Remarks

• Latvian Central Bank Governor Mārtiņš Kazāks said that inflation has fallen, with June now becoming a prime time to start cutting borrowing costs.
• Italian Central Bank Governor and ECB member Fabio Benita said that the ECB is heading for interest rate cuts as inflation quickly approaches the 2% target.
• ECB Chief Economist Philip Lane said the ECB is increasingly confident that European wage growth is slowing down to normal levels, opening the door for interest rate cuts.

European Rates

Such remarks boosted the odds of a June interest rate cut by the ECB, with investors now expecting 90 basis points of total interest rate cuts by the ECB this year.

Strong US Data

• Earlier US data showed GDP growth beat expectations in the fourth quarter of last year, while unemployment claims fell, as pending home sales rose in February.

US Data

Following the excellent data, the odds of a 0.25% Fed interest rate cut fell from 63% to 59%.

Quarterly Trades

The EUR/USD pair is down 2.5% so far this quarter, on tracking for the second quarterly loss in three quarters.

Interest Rate Gap

The eurozone-US interest rate gap currently stands at 100 basis points in favor of the US, however it could increase to 125 basis points in June if the ECB went ahead with cutting rates and the Fed held its ground, which would put the euro in a weak position.

Gold Prices

Gold prices rose on Thursday to fresh record highs while the dollar eked out gains against major rivals, with the precious metal marking a quarterly profit.

US Economic Data

• Earlier US data showed GDP growth at 3.4% in the fourth quarter of 2023, beating estimates of 3.2%.
• US unemployment claims fell to 210 thousand in the week ending March 23, below estimates of 214 thousand.
• The University of Michigan’s consumer confidence index rose to 79.4 from 76.5, marking mid-2021 highs.
• US pending home sales also rose 1.75% m/m in February, while falling 7% y/y.

US Personal Spending Data

Now investors await the important US personal spending data on Friday, which is the Fed’s favorite inflation index.

Dollar Index

• The dollar index rose 0.2% as of 20:04 GMT to 104.4, with a session-high at 104.5, and a low at 104.3.

Gold Spot Prices

On trading, gold spot prices rose 1.3%, or $29.5 to $2241.70 an ounce, with a weekly profit of 2.6%, and a quarterly profit of 6%.

Monitoring Market Movements

Stay updated on market developments for informed investment decisions.

Copper prices rose modestly on Thursday while the dollar gained ground, with ongoing concerns about Chinese demand on industrial metals, however copper was still heading for a 4% monthly profit.

Copper three-month futures at the London Metals Exchange fell 0.2% to $8834 a tonne as of 12:37 GMT. 

A recent Reuters survey indicates that China’s manufacturing sector will likely shrink for the sixth month in a row in March but with a slower pace. 

Market reaction to proposals by Chinese copper smelters to cut production by 5-10% was muted as the plan was already priced in before. 

Otherwise, the dollar index gained ground on Thursday, hurting dollar-denominated commodity futures such as copper.

Now investors await crucial US personal spending data, the Fed’s favorite inflation index, to gauge the likely pace of US monetary easing this year. 

As for other metals, aluminum prices rose 0.6% at the London Metals Exchange to $2311 a tonne, while zinc fell 0.2% to $2433, as lead shed 0.2% to $1,999, while tin fell 0.3% to $27440. 

The dollar index rose 0.1% as of 16:30 GMT to 104.4, with a session-high at 104.7, and a low at 104.3. 

Copper May futures rose 0.2% as of 16:30 GMT to $4 a pound.