👀 Ones to watch: The MOST undervalued stocks to buy right nowSee Undervalued Stocks

Dollar rises as market takes 4Q GDP in its stride

Published 2023-01-27, 04:04 a/m
© Reuters.
EUR/USD
-
USD/PKR
-
DXY
-

By Geoffrey Smith

Investing.com -- The dollar edged higher in early trade in Europe on Friday, but was still on course to end the week lower as the market consolidated around expectations of a smaller increase in interest rates from next week's Federal Reserve meeting.

The release of slightly stronger than expected fourth quarter growth data from the U.S. on Thursday did little to change that calculus, with the breakdown of the numbers showing that real consumer spending slowed more than expected and the quarterly index for personal consumption expenditures also fell surprisingly sharply.

"While inflation is still well above target and unemployment is at a cycle low, there are signs that the economy is responding to tighter monetary policy and the Fed will be cognisant of fears that hiking rates too hard and fast risks toppling the economy into recession," analysts at ING said in a morning note.

Consensus is now firmly in favor of the Fed raising the target range for fed funds by only 25 basis points next week, after already shifting from a 75 to 50 basis point increment at its last meeting in December. The release of the December price indices for core personal consumption expenditures - the Fed's favored measure of inflation - at 08:30 ET (13:30 GMT) later will have to be a long way off the forecast 4.4% to change anyone's minds at this stage.

Shifting expectations for Fed policy have underpinned European currencies on the crosses all week since the European Central Bank and the Bank of England are both widely perceived as still needing to raise rates more in order to tame inflation.

Fourth quarter Eurozone GDP data are starting to dribble out from the Eurozone, with Spain saying on Friday that its economy grew 0.2% in the period, in line with forecasts. Data from Germany, France, and Italy - the Eurozone's three largest economies - are due next week. The Deutsche Bundesbank has already said it estimates the German economy stagnated.

By 03:20 ET (08:20 GMT), the euro was down 0.2% at $1.0869, while the dollar index, which tracks the euro against a basket of six advanced economy currencies, was up 0.1% at 101.78.

Further afield, the spotlight is likely to be on Pakistan, where the rupee tumbled some 10% on Thursday as the central bank - under pressure to defend its dwindling foreign reserves - abandoned attempts to defend its exchange rate with the dollar. The country was devastated last year by floods that wiped out much of its agricultural sector and also badly hit industry.

Liberalization of the exchange rate has been one of the International Monetary Fund's chief conditions for resuming disbursements under a $7 billion financing package that was suspended last year.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.