NEW YORK- The US dollar edged lower on Friday, pausing after five straight sessions of gains but still poised for a weekly climb, as recent economic data and comments from Federal Reserve officials dampened expectations of rapid cuts in interest rates.
The greenback strengthened early in the session after economic data showed the University of Michigan’s preliminary reading on the overall index of consumer sentiment came in at 78.8 this month, the highest reading since July 2021, compared with 69.7 in December and the 70.0 estimate of economists polled by Reuters.
The data comes on the heels of solid labor market and retail sales data earlier this week indicating the economy remained firm.
Expectations for a cut from the Fed in March of at least 25 basis points (bps) have dipped below 50 percent according to CME’s FedWatch Tool, with traders now targeting May as the likely month for a rate cut announcement.
“The market is refusing to give up, it is pushing its ideas into the future, but it hasn’t changed its ideas,” said Joseph Trevisani, senior analyst at FXStreet in New York.
“The Fed is going to start lowering rates and the reason they’re going to start lowering rates is the economy is going to get weaker – this has been the mantra ever since the Fed pretty much started raising rates.”
The dollar index which tracks the greenback against a basket of six currencies, was down 0.08 percent at 103.26, on pace to snap a five-session win streak, but was up 0.8 percent on the week.
A steady stream of Fed officials, starting with Governor Christopher Waller on Tuesday, have pushed back on market expectations the central bank will embark on a path of fast reductions to interest rates. Waller said the Fed should proceed “methodically and carefully” until it is clear lower inflation will be sustained.