The US dollar rose against a broad range of currencies on Friday (Feb 21) including the euro, sterling and those tied to commodities such as the Australian dollar, as investors consolidated positions ahead of the weekend, looked to more expected inflation data and kept an eye on tariff headlines.
“The greenback is undergoing a technical rebound after suffering a sustained selloff in recent weeks, and other currencies are also seeing risk discounts come back as trade worries return,” said Karl Schamotta, chief market strategist, at Corpay in Toronto.
The greenback, however pared gains after S&P Global data on Friday showing US business activity dropped to a 17-month low this month. It fell further after declines seen in the University of Michigan sentiment report and US existing home sales data.
The reports kept the prospect of interest rate cuts by the Federal Reserve intact this year, even though it will remain on hold for the next several months.
US rate futures have priced in 44 basis points (bps) of easing this year, compared with 38 bps on Thursday, according to LSEG calculations. The Fed could likely resume cutting interest rates again either at the September or October policy meeting, LSEG data showed.
Markets will look to the release of the Personal Consumption Expenditures (PCE) index, the Fed’s preferred inflation measure, next Friday.
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In the United States, data showing the S&P Global’s flash US Composite PMI Output Index falling to 50.4 this month, the lowest since September 2023, compared with 52.7 in January, pulled the dollar lower against the yen. The PMI index tracks both the manufacturing and services sectors.
Also weighing on the US dollar was the more-than-expected drop in the US consumer sentiment index to a 15-month low. At the same time, inflation expectations surged as households worried about President Donald Trump’s steep and broad-based tariffs and their impact on their purchasing power.
Existing home sales also came in softer than expected, down 4.9 per cent last month.
The US currency has fallen in five of the past six weeks, and was down 2.2 per cent on the week. The dollar index was last up 0.2 per cent at 106.59.
In afternoon trading, the euro stumbled against the US dollar after a series of business activity surveys showed a sharp contraction in early February in France and only mild improvement in Germany – the eurozone’s traditional twin engines of growth. It was last down 0.4 per cent at US$1.0461, on track for its largest daily fall since early February.
Investors are also looking at Sunday’s election in Germany, where polls point to a conservative coalition win that could be pivotal in shaping their expectations for future economic growth.
The US dollar was also up against the commodity currencies: the Australian, New Zealand and Canadian dollars, but was slightly lower versus the Swiss franc at 0.8972. Against the yen, however, the US dollar dropped 0.4 per cent to 149.02 after earlier hitting a new 11-week low of 148.93.
The yen rallied as a selloff in Japanese government bonds drove yields to 2009 highs after national core inflation hit a 19-month peak in January. That fuelled expectations of more rate hikes in Japan. Bank of Japan (BOJ) chief Kazuo Ueda quickly doused the momentum, saying the central bank could contain long-term interest rates by buying government bonds. The yen has gained about 3.9 per cent against the US dollar so far in February. Another quarter-basis point rate hike is not fully priced in until September, although interest rate markets have factored in a slight chance of a hike as soon as May.
The pound, meanwhile, fell 0.3 per cent to US$1.2633 due to overall US dollar strength. It did gain earlier after data showing UK retail sales rose more than expected in January. A separate survey showed UK business activity expanded in February, although employers made deep cuts to staffing levels. REUTERS
