Market Analysis

Dollar Approaches Five-Month High; Sterling Weakens Following Wage Data

DpMarkets · 16 Apr 202418.9K Views

In early European trading on Tuesday, the U.S. dollar continued its ascent, reaching a five-month peak, while the pound retreated following moderate wage data.

At 04:00 ET (09:00 GMT), the Dollar Index, which measures the dollar against a basket of six major currencies, was up 0.1% at 106.125, slightly below the earlier high of 106.39, marking its strongest level since November.

The dollar's strength was bolstered by its safe-haven appeal amidst heightened tensions in the Middle East, amid concerns over potential conflict escalation following an Iranian strike over the weekend. Additionally, better-than-expected retail sales figures on Monday added to speculation about the Federal Reserve's timeline for interest rate adjustments, given the robust employment figures and consumer inflation uptick in March.

Analysts noted that while consumer spending was expected to slow, the resilience in this sector suggests the Fed may not rush into rate cuts. Mary Daly, president of the San Francisco Federal Reserve Bank, echoed this sentiment, stating that there's no immediate need for rate cuts with the economy and labor market performing strongly and inflation exceeding the Fed's target.

Today's economic calendar includes the release of industrial production data for March, along with housing starts and building permits figures, providing further insight into the housing market's health. However, all eyes are on Fed Chair Jerome Powell's upcoming speech for additional clues on interest rates and the U.S. economic outlook.

Meanwhile, in Europe, GBP/USD declined by 0.1% to 1.2438, nearing a five-month low post the release of wage data indicating a slowdown in wage growth, potentially paving the way for Bank of England rate cuts if the trend persists.

EUR/USD dropped by 0.1% to 1.0615, approaching its lowest level since early November, following signals from the European Central Bank of a possible rate cut in June, contingent upon geopolitical stability and energy price fluctuations.