(CTN News) – After rising overnight, the US dollar held firm as traders pondered the impact of domestic GDP inflation data that surprised to the upside on the Federal Reserve rate path.
On Thursday, the European Central Bank (ECB) held interest rates at a record-high 4%, putting the euro on the backfoot.
A 3.3% annualized growth rate was reported for the United States’ gross domestic product in the last quarter, overshooting the consensus forecast of 2%. Further subsiding of inflation pressures was also seen in the report.
Bond yields fell as the bond market focused more on the disinflation component of the GDP report, which reaffirmed soft landing hopes for the US economy.
Charu Chanana, head of currency strategy at Saxo in Singapore, said the dollar held up.
After climbing about 0.2% overnight, the dollar index hovered around 103.52 against a basket of major currencies. So far this year, it has gained about 2%. As of the morning of Asian time, the benchmark 10-year Treasury yield was down at 4.11%.
According to the CME FedWatch tool, markets predict a 50% chance of a rate cut in March, down from 75.6% last month. If December PCE comes in softer than expected today, yields and the dollar may be under pressure.
Last week, the euro fell to a six-week low of $1.08215.
At its policy meeting on Thursday, the ECB held steady as expected, although traders piled on bets that it will cut interest rates from April as policymakers become more confident about inflation.
A less direct ECB response to market expectations of an April rate cut was noted on wages,” which led to higher expectations and “emphasizes a bearish outlook for the euro,” Chanana noted. Sterling settled around $1.2703. Next Thursday, the Bank of England will announce its interest rate decision.
After the Bank of Japan took a more hawkish tone earlier this week, the was stuck around 147.56 per dollar overnight.
The Bank of Japan reported Friday that core inflation fell below its target of 2% in January from a year earlier to 1.6%. In a note, Capital Market’s Head of Asia-Pacific Marcel Thieliant wrote that Tokyo’s inflation plunged to well below 2% last month, putting into doubt the Bank of Japan’s willingness to end negative interest rates.
In the coming months, the focus will be on whether wages will rise enough to support consumption and help Japan attain its 2% inflation target.
Bitcoin was last down 0.1% to $39,858.20 in cryptocurrencies.