NEW YORK: The dollar index rebounded on Thursday after earlier hitting a three-week low as investors waited on new data catalysts for clues on when the US Federal Reserve is likely to begin cutting interest rates.
The greenback has bounced this year as strong growth and sticky inflation leads traders to push back expectations on when the US central bank will begin easing. But after hitting a three-month high last week, the US currency has been largely consolidating.
The dollar is likely to benefit from divergences with other countries as the US economy looks relatively stronger, said Noel Dixon, senior macro strategist at State Street Global Markets in Boston.
However, after the recent strength “there’s clearly some fatigue with some of the dollar bulls,” he said. “For the dollar to break out one way or another we would need to see more data.”
The dollar index was last up 0.08% at 104.06. It fell to 103.43 earlier on Thursday, the lowest since Feb. 2, and is holding below the 104.97 level reached on Feb. 14, which was the highest since Nov. 14.
Personal Consumption Expenditures (PCE) due next week may provide the next clues for Fed policy. Minutes from the Fed’s January meeting released on Wednesday showed that the bulk of policymakers were concerned about the risks of cutting interest rates too soon as they seek to bring inflation closer to the 2% annual target.
The US dollar may also be supported by weakness in other regions, including Canada and Australia, which could lead their central banks to cut rates before the Fed, said Dixon. Data on Tuesday showed that Canada’s annual inflation rate slowed significantly more than expected in January. Australian unemployment was also surprisingly weak in January, while the jobless rate climbed to a two-year high, data showed last week.