Although the dollar initially dropped on Thursday due to reports of the smallest U.S. price gains in nearly three years, the possibility of a Federal Reserve interest rate cut in June remained viable
The dollar increased on Thursday during volatile trading sessions and was poised for its second successive monthly growth against the euro and yen.
This rise came despite an initial decline following reports that U.S. inflation in January met expectations.
The yen strengthened after a policymaker suggested the potential need to exit ultra-easy monetary policies, while bitcoin remained near a more than two-year peak achieved on Wednesday.
Although the dollar initially dropped on Thursday due to reports of the smallest U.S. price gains in nearly three years, the possibility of a Federal Reserve interest rate cut in June remained viable.
Market strategist Karl Schamotta noted that concerns regarding underlying inflationary pressures were somewhat alleviated by the recent data.
The dollar index reached a three-month high after the Consumer Price Index (CPI) data release on February 13 revealed prices had accelerated more than anticipated. Despite the brief decline in the dollar on Thursday, the currency quickly rebounded.
Shaun Osborne, chief foreign exchange strategist at Scotiabank, highlighted the lack of strong conviction in the current foreign exchange market and suggested the dollar may be overvalued given the current economic conditions.
Some of the fluctuations on Thursday were likely attributed to month-end portfolio adjustments. Traders are monitoring economic indicators to gauge when the Fed might initiate interest rate cuts.
Some analysts predict a slowdown in the U.S. economy in the upcoming months, with inflation expected to ease closer to the Federal Reserve’s 2% target. This could lead to a weakening dollar as the Fed considers easing policies.
The signs are auguring towards a cooling in a lot of U.S. economic data and that could damage that U.S. exceptionalism trade and lead to flows out of the dollar, said Schamotta.
Market observers are estimating a 64% probability of a rate cut by the Fed in June, up from 63% on Wednesday, per the CME Group’s FedWatch Tool.
Atlanta Fed President Raphael Bostic mentioned on Thursday that the path for inflation to reach 2% would be uneven.
The dollar index was up by 0.22% at 104.15 on Thursday, heading towards a monthly gain of 0.57%.
Meanwhile, the euro declined by 0.33% to $1.0800 and is on track for a monthly loss of 0.15%.
