The US dollar rose at the start of the week, supported by investors’ anticipation of a series of important economic data releases and the Federal Reserve’s meeting minutes, as US markets returned from a public holiday while some Asian markets remained closed. The movement of the US currency comes amid market assessments of the interest rate path following the Fed’s recent decision to hold rates steady, alongside ongoing concerns over inflation and the labor market, with investors awaiting key data, including the Personal Consumption Expenditures (PCE) price index, the Fed’s preferred measure for tracking inflation.
Meanwhile, the British pound faced notable pressure following data showing continued weakness in the UK labor market. The unemployment rate rose to 5.2% for the three months ending in December, marking its highest level since early 2021, heightening concerns about the strength of the economic recovery. Wage growth excluding bonuses slowed to 4.2% year on year, compared with 4.5% in the previous period, indicating easing wage driven inflationary pressures.
These developments led market participants to increase bets on the Bank of England moving toward further interest rate cuts during the year, particularly as inflation is expected to gradually approach target levels in the coming months. Analysts suggest that rising signs of labor market weakness may prompt policymakers to focus more on supporting economic activity and encouraging employment, placing additional near term pressure on the pound.
In Europe, the euro showed limited movement ahead of German investor confidence data, while Canadian figures indicated a slight slowdown in annual inflation, influencing the Canadian dollar’s movement. In Asia, the Japanese yen remained stable following weaker than expected growth data, amid speculation about Japan’s monetary policy direction.
Overall, the pound’s performance remains dependent on labor market developments, inflation trends, and monetary policy expectations, while the US dollar continues to benefit from the cautious positioning ahead of key economic releases that could shape market direction in the near term.
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