During the past week, the U.S. Dollar exhibited a mixed performance amid positive economic data and rising uncertainties preceding Donald Trump's presidential inauguration. Between January 13 and 17, the dollar depreciated against the euro, Australian Dollar, and Japanese Yen, while gaining strength against the British Pound. The Dollar Index, an indicator measuring the dollar's relative strength against a set of six designated currencies, also declined over the week.
The Dollar Index concluded the week ending January 17 at 109.35, slightly down from 109.65 the previous week. After reaching a multi-month peak of 110.18 on Monday, following unexpectedly strong payroll data, the Index declined to a low of 108.60 on Wednesday, coinciding with the release of December's Consumer Price Index (CPI) readings.
Recent U.S. data indicating lower-than-anticipated core inflation, producer price inflation, and retail sales suggest the Federal Reserve has more flexibility to ease monetary policy, contributing to the dollar's decline.
Wednesday’s update on U.S. consumer price inflation, particularly the unexpectedly soft core inflation figures, significantly influenced currency market sentiment. The core year-on-year inflation rate, previously steady at 3.3 percent, unexpectedly dipped to 3.2 percent. Although annual headline inflation rose to 2.9 percent from November's 2.7 percent, this increase aligned with market expectations.
Meanwhile, month-on-month inflation edged up unexpectedly to 0.4 percent from 0.3 percent, while expectations were met with the core component dropping to 0.2 percent.
The EUR/USD pair advanced by 0.26 percent over the week ending January 17, amid dollar weakness and signals from European Central Bank officials indicating a balanced approach to monetary policy. The pair rose from 1.0244 on January 10 to 1.0271 by week's end, having fluctuated between a low of 1.0178 on Monday and a high of 1.0355 on Wednesday.
Conversely, the British Pound weakened against the dollar by 0.34 percent. The GBP/USD pair’s range spanned from a low of 1.2098 on Monday to a high of 1.2307 on Wednesday, ultimately closing at 1.2163, compared to 1.2204 the previous week, amidst data revealing unexpected decreases in both inflation and GDP in the U.K.
The AUD/USD pair appreciated by 0.73 percent over the week ending January 17, rising from 0.6145 to 0.6190. The pair saw a low of 0.6131 on Monday and reached a high of 0.6248 on Wednesday, driven by an increase in Australia's unemployment rate, alongside China’s robust trade data released on Sunday, reflecting a larger-than-expected surge in imports and exports.
Strength in the yen pressured the USD/JPY pair down by 0.88 percent, from 157.69 to 156.30 over the week. The pair’s weekly trade fluctuated broadly, moving between a high of 158.23 on Tuesday and a low of 154.98 on Thursday, amid renewed anxieties about another imminent rate hike from the Bank of Japan.
Despite the recent dollar downturn driven by data, the greenback continues its decline into the current week, with the Dollar Index currently standing at 108.58, compared to 109.35 at the last week's close. Speculation over Trump's potential tariff strategies and other economic policies maintain significant influence over the currency markets.
As the week progresses, the EUR/USD pair has climbed to 1.0362, while the GBP/USD pair has strengthened to 1.2260. The AUD/USD pair is presently at 0.6233, up from 0.6190 at Friday's close. Before the Bank of Japan's interest rate decision expected on Thursday, the USD/JPY pair has fallen to 155.72.
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