In Singapore, Reuters reports that the dollar saw a modest decline on Thursday as traders anticipated the release of several business activity surveys. These surveys, including the Flash Purchasing Managers’ Index (PMI) figures for the U.S., the UK, and the euro zone, are expected to shed light on the current state of their manufacturing and service sectors. Investors are keenly observing these reports to better understand the health of major economies and its potential implications for the global interest rate outlook.
Ahead of the PMI releases, the euro strengthened by 0.14% to $1.0835, while the British pound also saw a modest increase of 0.08% to $1.2647. Against the Japanese yen, the dollar experienced a slight decline of 0.04%, reaching 150.23.
Matt Simpson, a senior market analyst at City Index, pointed out that the composite PMIs for the U.S., Europe, and the UK indicate either an expansion at an accelerated pace or a slowing down at a decreasing rate. This suggests potential upward pressure on growth and inflation, aligning with the narrative of a prolonged period of higher levels, which may not be favorable to traders.
The dollar index, which measures the greenback against a basket of major currencies, dipped by 0.15% to 103.81. Although it has declined by over 0.4% for the week so far, its recent drop can be attributed to a global decrease in bond yields earlier in the week. Nevertheless, the index has gained more than 2% since the beginning of the year, as traders adjust their expectations for multiple rate cuts by the Federal Reserve in 2024, a factor that has provided ongoing support to the dollar.
The release of the minutes from the Federal Reserve’s latest policy meeting on Wednesday reinforced the notion that the central bank is not in a rush to lower interest rates, a move that officials anticipate may begin later this year.
Tony Sycamore, a market analyst at IG, noted that the minutes didn’t contain many surprises, essentially reiterating what was already known from the Federal Open Market Committee (FOMC) meeting. He suggested that the market may not be fully convinced about the timing of potential rate cuts by the Fed, especially considering upcoming data releases such as the core Personal Consumption Expenditures (PCE) report, which is expected to show strength, thus delaying rate cut expectations in the U.S.
According to the CME FedWatch Tool, traders currently assess the probability of the Fed initiating rate cuts in May at around 30%, significantly lower than the over 80% probability estimated a month earlier.
This shift in sentiment follows recent data releases indicating higher-than-expected producer prices and consumer prices in January, along with continued robustness in the U.S. labor market.
The Australian dollar saw a slight uptick of 0.07% to reach $0.65565, while the New Zealand dollar climbed to an over one-month high, hitting $0.6205.
Market attention is turning to the upcoming meeting of the Reserve Bank of New Zealand (RBNZ) next week. While most economists anticipate the bank will maintain the cash rate at 5.5%, there is some speculation about the possibility of a rate hike. This speculation has provided some support to the kiwi.