The US dollar experienced a slight decline on Thursday, retreating from its five-month highs reached last week, as the market awaited the release of key US growth data. The Japanese yen, on the other hand, continued its downward trajectory, reaching 34-year lows against the dollar.
The Dollar Index, which measures the greenback’s value against a basket of six other major currencies, was down 0.2% at 105.445 around 04:10 ET (09:10 GMT). Notably, it had climbed above 106 last week.
The dollar’s pullback is largely attributed to anticipation surrounding the release of first-quarter US gross domestic product (GDP) data. Economists predict a slowdown in GDP growth to 2.5% in the first three months of the year, down from 3.4% in the fourth quarter. Despite this expected decline, it suggests that the US economy remains more robust than other advanced economies, despite challenges such as inflation and high interest rates.
Another closely watched economic indicator is the PCE price index data, the Federal Reserve’s preferred measure of inflation, which is due for release on Friday.
Despite the recent dip, Macquarie predicts that the dollar will continue to reign supreme in currency markets until signs of a cooling in US economic exceptionalism appear. The firm believes that until other economies begin to catch up with the US, and until the Fed provides a clearer timeline for policy easing, it will be challenging for other currencies to gain ground against the dollar.
In European currency markets, the euro (EUR/USD) gained 0.3% to 1.0726, partially recovering from previous session losses. This uptick follows positive data from Germany, where the GfK forward-looking consumer climate index improved slightly in May, indicating a gradual recovery in the eurozone’s largest economy.
The British pound (GBP/USD) also rose, climbing 0.5% to 1.2521. This rise in confidence stems from recent reports of strong growth in business activity in the UK. However, inflation in the UK remains elevated at 3.2%, above the Bank of England’s 2.0% target, signaling potential headwinds for the currency.
In Asian markets, the Japanese yen (USD/JPY) witnessed a surge against the dollar, rising 0.2% to 155.67. This marks the yen’s highest level against the dollar since 1990, surpassing the psychologically important 155 mark. The yen’s weakness has prompted discussions of potential currency intervention by Japanese authorities, who have expressed concerns and stated that they will respond appropriately.
The Chinese yuan (USD/CNY) also edged higher, reaching 7.2473, staying close to its five-month highs, as the People’s Bank of China continues to maintain its strong currency position.
Finally, the Australian dollar (AUD/USD) gained 0.5% to 0.6529, supported by reduced expectations of interest rate cuts from the Reserve Bank of Australia this year, following a smaller-than-expected slowdown in consumer price inflation in the first quarter.
