26/01/2024
US dollar update
US dollar summary
The US economy has shown unexpected resilience with a reported GDP growth of 3.3% against a projected 2%, driven by robust consumer spending and increased consumer confidence attributed to easing inflation. This positive trend has contributed to an annual GDP growth of approximately 2.5% for the year 2023. The change in the Personal Consumption Expenditures (PCE) index, a key inflation measure watched by the Fed, has remained within the 2% target, indicating controlled inflation levels. Notably, the annual Core PCE Price Index, a preferred inflation gauge by the Fed, softened to 2.9% in December from 3.2% in November, aligning slightly below market expectations.
The strength of the US economy has significantly reduced the likelihood of an interest rate cut in March. The probability, as reflected by the Fedwatch tool from CME, is at 52% for the first rate cut in March. This expectation has supported yields on 10-year treasury bonds, maintaining them above 4%. The resilience of the US economy and the maintained interest rates have contributed to a stronger US dollar, impacting the value of gold, EURUSD, and other dollar-related assets negatively.
On the global stage, the US Dollar gained against most of its major counterparts following the release of key US economic indicators, including GDP, Durable Goods, PCE, and Jobless Claims. The dollar’s strength was further bolstered by the European Central Bank’s reluctance to provide forward guidance on rate cuts, leading to a decline in the euro’s value against the dollar.
Overall, the US economic data presents a narrative of a robust economy, potentially delaying the anticipated monetary policy easing. The market’s focus now shifts to the pace at which interest rates might be adjusted in response to the evolving economic landscape.
Market Views & Opinions
According to Citigroup “Citi Analysts remain constructive on EURUSD tactically (0-3m forecast of 1.11). EUR has benefited from global equities remaining supported, the ECB pushing back on dovish market pricing, and a potential bottoming in sentiment indicators.
ING in a recent report says “Yesterday’s US data releases certainly can be filed in the ‘soft landing’ drawer. Decent growth and benign inflation support the thesis that the Federal Reserve can make monetary policy less restrictive in an orderly manner and that, if the US economy does experience a recession, it will be a mild one. Equity markets seem happy to hold onto gains. The dollar does not know quite what to make of it. On the one hand, the mildly pro-risk sentiment should be a mild dollar negative.”
IMPORTANT DISCLAIMER
The information in this report is of a general nature only. It is not a piece of personal financial advice. It does not take into account your objectives, financial situation, and personal needs.
a-Quant is not responsible for your actions and recommends you contact a licensed financial advisor before acting on any information contained in this general information report.
