The US Dollar edged higher against European currencies on Wednesday amid fresh doubts over US rate cuts and traders are unlikely to sell the US currency in the near term.
According to ING; “It is hard to speculate against the dollar in the G10 space.”
The Pound to Dollar (GBP/USD) exchange rate has held just above the 1.2600 level and traded around 1.2615 on Thursday with EUR/USD just above 1.0800.
Dollar developments are likely to be dominant for GBP/USD with a potential test of support below 1.2600.
Bank of England (BoE) MPC member Haskel stated that he thinks rate cuts are a long way off while revised GDP data still indicated a narrow UK recession in the second half of 2023.
As far as US data releases are concerned, the latest weekly jobless claims data is expected to show a small increase to 212,000 from 210,000 previously.
The final GDP data for the fourth quarter of 2023 and pending home sales data is also scheduled as well as the latest Chicago manufacturing PMI index.
There will need to be a sharp increase in jobless claims and a slide in pending home sales to trigger a notable market reaction.
There will be caution ahead of important US data on Friday.
The latest PCE prices data index is an important inflation reading for the Federal Reserve.
The main focus will be on the core data with expectations of a 0.3% increase for the month with the year-on-year rate holding at 2.8%.
Stronger than expected data would trigger fresh concerns over inflation trends and tend to support the dollar.
In contrast, weaker than expected data would be a significant relief and tend to undermine the dollar.
With European markets closed on Friday, there will be an element of position adjustment on Thursday with concerns over stronger than expected data deterring dollar sellers.
In comments overnight, Fed Governor Waller also stated that the Fed may need to wait longer than expected to cut interest rates.
Market expectations of a June interest rate cut have declined to just below 65% from 70% and the dollar will tend to benefit if expectations retreat further.
On a near-term view, markets will continue to monitor the yen and potential for Bank of Japan intervention to support the currency.
USD/JPY has edged away from 34-year lows with USD/JPY retreating to 151.30 from highs fractionally below 152.00.
The dollar will register a temporary retreat if the Finance Ministry decides to intervene through the Bank of Japan, but with potential buying on dips.
