US Dollar Bulls Eye 104 on Higher Safe-Haven Demand: Could CPI Turn Things Around?
The new year witnessed a robust performance by the US dollar, as evidenced by the Dollar Index's 1% gain, reaching the 103 level tested the previous week.
This surge stands out as a strong signal of recovery from the downward trend that began in late October, with support stemming from the latest US economic data.
The Federal Reserve's indication of a prolonged period of higher interest rates this year, coupled with hawkish rhetoric from the Fed, contributed to the dollar's rise against six major currencies.
Furthermore, the uptick in US Treasury yields played a pivotal role in bolstering the greenback's position.
This week, inflation data, which is closely monitored by the Fed, will be in focus. While the markets remained calm before the US CPI report, the dollar started the week by maintaining its positive outlook.
According to the Employment data and unemployment rate, it was seen that there was more employment than expected in December, while the increase in wages also stood out.
The data thus made the inflation data to be announced on Thursday more important. Another detail about the US economy was the results of the US non-manufacturing PMI that revealed that the service sector slowed down considerably in the last month of 2023 and employment declined to the level of 3.5 years ago.
While these survey results and the published employment data contrasted, dollar index remained stable at 102.4 after some volatility on the same day.
Despite the increase in US employment, the relative slowdown in the US labor market also strengthened the views that there may be a loosening in the labor market in the coming months.
Against this mixed backdrop, the Fed will be looking for confirmation that inflation remains within its 2%
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