The DXY index slipped below the 107.5 mark on Friday, extending its decline to a more than one-month low, as strength from major counterpart currencies and shifting market sentiment pressured the greenback.
Dollar drops to one-month low
Investors reassessed the potential inflationary impact of policies previously pledged by President Trump. At the World Economic Forum, the US President reiterated plans to expand energy output and ease regulations on businesses, measures intended to spur economic growth. However, he avoided emphasizing tariffs on Chinese imports, which helped temper inflation concerns tied to key goods entering the US.
Labor market figures puts further pressure on USD
Adding to the dollar's weakness, US labor market data revealed that recurring unemployment claims climbed to their highest level in over three years in January, signaling cracks in the labor market from the Federal Reserve's restrictive monetary policies. While overall employment remains robust by historical standards, the uptick in claims has raised concerns about the resilience of economic activity under tighter financial conditions.
External factors
On the global front, the yen strengthened against the dollar after the Bank of Japan raised its key interest rate and issued a hawkish outlook, signaling potential further tightening. Meanwhile, in Europe, PMI data pointing to persistent inflation pressures prompted markets to reconsider the magnitude of upcoming rate cuts by the European Central Bank (ECB) and the Bank of England (BoE). Both central banks are grappling with balancing economic challenges against the need to rein in inflation, adding to volatility in currency markets.
Combinations of news hitting the dollar
Overall, the dollar's retreat reflects a combination of domestic and international factors, as traders weigh the evolving policy landscape and its implications for growth, inflation, and monetary tightening across key economies. The continued strength of the yen, euro, and pound has further tilted the balance against the dollar, underscoring the currency's vulnerability in the current environment.
