The dollar maintained its strong position on Friday, bolstered by optimistic economic data from the United States that has tempered forecasts for further monetary easing by the Federal Reserve in 2023. The dollar index, which tracks the greenback against a basket of major currencies, climbed 0.6% during the previous trading session, reaching near three-week highs. This upward trajectory follows positive reports on U.S. economic growth, initial unemployment claims, durable goods orders, and wholesale inventory levels, all of which exceeded market expectations.
The Japanese yen fell to an eight-week low, impacted by new tariffs introduced by U.S. President Donald Trump. Traders are now closely watching the upcoming U.S. consumer spending data for additional insights into the economic scenario and the necessity for further Fed stimulus measures.
“Markets are interpreting this data with caution, and we may see a slight reduction in expected interest rate cuts,” noted Gavin Friend, a senior market strategist at National Australia Bank. “When you receive robust figures like those reported recently, it prompts the question of whether aggressive stimulus is truly warranted.”
The dollar index stabilized at 98.473 and is on track for a weekly increase of 0.8%. The greenback exchanged at 149.81 yen, after approaching the significant 150 mark for the first time since August 1. Meanwhile, the euro traded at $1.1665, reflecting a 0.6% decline from the previous session.
Market participants are currently anticipating an 87.7% likelihood of a 25 basis point rate cut by the Fed in October. This figure represents a modest decrease from the 90%-92% probability estimated earlier in the week.
Recent data released by the Commerce Department revealed that U.S. gross domestic product (GDP) experienced an upward revision, now recorded at a growth rate of 3.8% from April to June—exceeding the previously reported 3.3%. Analysts polled by Reuters had not anticipated such a revision.
The anticipated Personal Consumption Expenditures (PCE) price index, which serves as the Fed’s preferred measure of inflation, is projected to rise by 0.3% month-on-month for August, with a year-on-year increase of 2.7%. “Given that Fed officials are concerned about persistent inflation, a report in line with these expectations would be positive,” said Bansi Madhavani, a senior economist at ANZ. “As long as inflationary signals remain strong, we foresee that the Fed can continue to implement gradual rate cuts of 25 basis points.”
In Tokyo, data indicated that core inflation in September surpassed the central bank’s 2% target, contributing to speculations about an imminent interest rate hike. The backdrop of international trade saw fresh tensions with President Trump’s announcement of new tariffs, which included 100% duties on branded pharmaceuticals, 25% on heavy-duty trucks, and 50% on kitchen cabinets. This move has reignited concerns just as bilateral trade agreements were beginning to ease apprehensions regarding the economic fallout from U.S. tariffs.
