NEW YORK :The U.S. dollar advanced on Friday and was poised for a weekly gain, as recent economic data and comments from Federal Reserve officials have cooled expectations of rapid cuts in interest rates.
Economic data showed the University of Michigan’s preliminary reading on the overall index of consumer sentiment came in at 78.8 this month, the highest reading since July 2021, compared with 69.7 in December and the 70.0 estimate of economists polled by Reuters.
“The doom and gloom crew is very vocal, especially among politicians,” said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin.
“Yet, businesses and individuals have been quietly plugging away, trying to make the best of their situations. That’s beginning to change a bit as sentiment has begun to catch up with what people are actually doing.”
The data comes on the heels of solid labor market and retail sales data earlier this week indicating the economy remained firm.
A steady stream of Fed officials, starting with Governor Christopher Waller on Tuesday, have pushed back on market expectations the central bank will embark on a path of fast reductions to interest rates. Waller said the Fed should proceed “methodically and carefully” until it is clear lower inflation will be sustained.
On Friday, Chicago Fed President Austan Goolsbee said weeks more of inflation data need to be in hand before any decision could be made to cut interest rates.
Expectations for a cut from the Fed in March of at least 25 basis points (bps) are currently at 53.2 per cent, according to CME’s FedWatch Tool, compared with 55.5 per cent in the prior session and a decline from the 82 per cent a week ago.
The dollar index, which tracks the greenback against a basket of six currencies, was up 0.08 per cent at 103.43, on pace for its sixth straight day of gains and was up 0.9 per cent on the week.
The euro was up 0.01 per cent at $1.0875 against the dollar but is down nearly 0.7 per cent for the week. J.P.Morgan on Friday pulled forward its expectations for the start of interest-rate cut by the European Central Bank to June from September, but said it remained “cautious” about inflation and wage growth trends.
The yen weakened 0.12 per cent versus the greenback to 148.33 per dollar. The Bank of Japan is scheduled to hold a policy meeting next Monday and Tuesday, and is likely to maintain its ultra-loose monetary settings. The greenback is up more than 2 per cent against the Japanese currency this week and on pace for its third straight weekly gain.
Earlier data showed Japan’s core inflation rate slowed to 2.3 per cent in the year to December, its lowest annual pace since June 2022, taking the pressure off policymakers to make swift moves.
Sterling was last trading at $1.267, down 0.29 per cent on the day after data on Friday showed UK retail sales slumped by the most in three years in December.
In cryptocurrencies, bitcoin edged down 0.48 per cent to $40,864.88 and was on track for its second straight week of declines as investors have taken profits following the U.S. approval of spot bitcoin exchange-traded funds.