The U.S. Dollar opened 2024 in style with gains against the euro, the British pound, the Australian Dollar as well as the Japanese yen in the opening week. The week ended January 5, 2024, also witnessed the 6-currency Dollar Index surge ahead more than a percent, recording the biggest weekly rise since July 2023.
The Dollar Index, a measure of the Dollar's strength against a basket of 6 currencies surged 1.1 percent during the week ended January 2024. From the level of 101.33 on December 29, the DXY jumped to 102.41 in a week's time. The Dollar's strength, in the backdrop of markets doubting a Fed pivot in March, lifted the index from the low of 101.34 recorded on Monday to 103.10 by Friday.
The Dollar's climb over the week came amidst data that showed the American economy added 216 thousand jobs in December versus 173 thousand in the previous month and expectations of 170 thousand. The better-than-expected labor market update added uncertainty to the interest rate trajectory that the Fed could embark in 2024. The strong labor market is seen curtailing the Fed's ability to ease monetary policy, adding to the perception that bets on early rate cuts were unfounded.
The payrolls data also guided rate cut expectations as revealed by the CME FedWatch tool. The probability of rate cuts in March dropped to 68 percent on January 5, versus 89 percent recorded a week earlier, casting apprehensions about an early pivot by the Fed.
Meanwhile, the minutes of the Federal Open Markets Committee released on Wednesday revealed a Fed that acknowledged lower inflation risks while also worrying about overly restrictive monetary policy. The Fed however gave no timeline for rate cuts.
The ISM Services PMI reading which dropped to 50.6, from the previous reading of 52.7 and expectations of 52.6, limited gains.
Amidst the resurgent dollar and PMI data that revealed continued contraction, the euro weakened steadily over the course of the week. From the level of 1.1036 on the last Friday of December, the EUR/USD pair dropped to 1.0941 by January 5. The pair's trading range was slightly wider, between 1.1048 recorded on Monday and 1.0876 touched on Friday.
The British pound edged down 0.10 percent against the Dollar during the week ended January 5. The GBP/USD pair slipped to 1.2716, from 1.2729 a week earlier. The week's trading range was between 1.2609 and 1.2772 amidst data that showed manufacturing PMI missing expectations and services PMI surpassing estimates.
The Australian Dollar weakened heavily against the U.S. Dollar during the week ended January 5. The AUD/USD pair plunged 1.42 percent, dropping to 0.6713 from 0.6810 a week earlier in the backdrop of disappointing PMI readings and weak sentiment towards China. The Australian Dollar ranged between $0.6841 and $0.6640 during the first week of 2024.
The yen collapsed against the Dollar during the week ended January 5 amidst the devastating earthquake that jolted Japan. The USD/JPY pair rose to 144.65, from 141.06 a week earlier. The more than 2.5-percent surge in the USD/JPY pair came after trading that ranged between 140.81 recorded on Tuesday and 145.99 recorded on Friday. Trading volumes remained thin as local markets were closed for a holiday.
The week spanning January 8-12 is heavy on data releases, particularly the inflation updates from U.S. and China. Annual headline inflation in the U.S. is seen rising to 3.2 percent, from 3.1 percent in the previous month whereas the core component is seen declining to 3.8 percent, from 4 percent earlier. Headline monthly inflation is seen rising to 0.2 percent, from 0.1 percent earlier. The core component thereof is seen edging lower to 0.2 percent, from the previous reading of 0.3 percent.
Further, due during the week are producer-price inflation readings from the U.S. and GDP update from the U.K. Amidst the uncertainty and markets speculating on the likelihood of early rate cuts by the Fed, the DXY has edged down to 102.38. The EUR/USD pair has increased to 1.0951 whereas the GBP/USD pair is at 1.2714. The AUD/USD pair is at 0.6684. The USD/JPY pair has also decreased to 144.45.
