FOREX-DOLLAR REMAINS STABLE ALTHOUGH ECONOMIC DATA CLOUDS FED FORECASTS

After two erratic days marked by steep drops and a rebound, the dollar stabilized on Thursday as traders interpreted incoming economic data as suggesting the Federal Reserve may delay raising interest rates.

The dollar index, which compares the value of the US dollar to six other currencies, remained stable at 104.33. It saw a 1.51% decline the day before, which was the biggest decline for a single trading day in a year, before rising 0.31% on Wednesday.

The yen was up at 151.16 and the euro was up about 0.1% at $1.0857. The dollar was unchanged at $1.24085 against pound.

Better-than-expected retail sales data declining inflation supported the dollar and contributed to the narrative of an economic “soft landing,” which would give the Fed more time before reducing rates.

“We're seeing the dollar trading currencies today, off the back of those retail sales that are putting a dampener on those hopes that, potentially, we could see a rate cut sooner rather than later,” Susannah Steeter, a strategist at Hargreaves Lands

Session by session, opinions on this are very erratic. The Fed has stated that data-driven decisions are what particularly drive the market.

The first cut's schedule has advanced this week, but in light of Wednesday's better-than-expected consumer spending data, the Fed may now drop rates by a different amount.

According to the CME Group's FedWatch Tool, traders are still confident that rates won't rise, but they have decreased the likelihood of a first drop by March from better than 1-in-3 a day earlier to less than 1-in-4.

They are pricing for about 70 basis points' worth of cuts over 2024 based on the rate implied by futures markets, as opposed to forecasts of 80 bps of easing a week ago.

Senior corporate FX dealer at Convera James Kniveton stated, “While inflation is falling, they allow the Fed to increase rates if they chose,” although he also pointed out that Fed officials don't currently seem to be in the mood for a hike.

Jim Reid, a strategist at Deutsche Bank, highlighted data from his bank's analysts on Thursday, indicating that this is the eighth time in the previous two years that markets have priced in a quick change by the Fed to lower interest rates. For the first six, those anticipations completely unraveled.

Senior corporate FX dealer at Convera James Kniveton stated, “While inflation is falling, the economy remains robust, which might even allow the Fed to increase rates if they chose,” although he also pointed out that Fed officials don't currently seem to be in the mood for a hike.

We've already visited this well seven times in the last two years, so be cautious. There will eventually be a dovish pivot, and this one might be closer to it than the others, Reid said.

In other news, the New Zealand dollar dropped 0.3% to $0.605 while the Australian dollar lost 0.1% to $0.6502.

A robust increase in employment did not help the Australian dollar, as traders focused on the fact that increases came primarily from part-time labor.