Fundamental Analysis

Dollar Holds Seven-Week High After More Positive Data 

  • The dollar maintained a seven-week high after new data showed continued strong inflation.
  • The US PCE price index increased 5.4% in the 12 months that ended in January.
  • BOJ’s Ueda emphasized that the central bank must maintain low-interest rates.

The US dollar on Friday maintained a seven-week high as new data showing continued strong inflation confirmed predictions that interest rates might rise further.

Hotter-than-expected figures released last week helped the dollar gain ground over many key rivals. The dollar index rose 0.6% to 105.20, a seven-week high.

US inflation (Source: Bureau of Economic Analysis)
US inflation (Source: Bureau of Economic Analysis)

The personal consumption expenditures (PCE) price index, which the Federal Reserve tracks for monetary policy, increased 0.6% last month after increasing 0.2% in December, fueling the recent rise in the dollar’s value. After increasing 5.3% in December, the PCE price index increased 5.4% in the 12 months that ended in January.

According to the Commerce Department, consumer spending, which makes up more than two-thirds of all economic activity in the United States, increased by 1.8% last month. Moreover, new single-family home sales in the United States rose 7.2% in January, the most since March 2022.

The pound maintained its strength on Friday due to data showing a little uptick in UK consumer sentiment. However, the currency was still on track for its first monthly decline since September.

According to market research firm GfK, although British consumers are now more upbeat about their finances and the economy’s future, they are still far from where they were before the COVID-19 outbreak.

Australia’s Treasurer Jim Chalmers stated on Sunday that the nation’s stubbornly high inflation had probably peaked, but he acknowledged that it still poses a significant economic challenge.

Recently, the RBA increased its predictions for core inflation and wage growth and warned that additional interest rate increases would be required to prevent a catastrophic wage-price spiral.

On Friday, Kazuo Ueda, the incoming Bank of Japan (BOJ) governor, cautioned against the dangers of monetary tightening in response to cost-driven inflation and emphasized that the central bank must maintain extremely low interest rates to help the ailing economy.

Ueda suggested that the BOJ might modify its bond yield curve control (YCC) in the future, but he added that the bank must first decide when and how to do so. This suggests the new Chief won’t be eager to alter the unpopular policy.