Dollar Set to Break Five-Week Losing Streak Amid Robust Economic Data

The U.S. dollar steadied near a one-week high, poised to snap a five-week losing streak, after robust economic data led investors to temper expectations for aggressive Federal Reserve rate cuts. The Chinese yuan strengthened to its highest since June 2023, and the euro showed minimal movement as euro zone inflation eased.

The U.S. dollar held its ground near a one-week high against major peers on Friday, appearing set to end a five-week losing streak after robust economic data softened investor bets on aggressive Federal Reserve rate cuts. Meanwhile, the Chinese yuan surged to its highest level since June 2023, and the euro remained stable as euro zone inflation data suggested a rapid easing of price pressures.

The U.S. dollar index—benchmarking the currency against six major peers—stood flat at 101.40, after climbing 0.36% on Thursday and reaching a peak of 101.58. Fresh economic data revealed that the U.S. GDP increased at a 3.0% annualized rate in the second quarter, up from a previously reported 2.8%. This prompted notable movements in currencies and U.S. Treasury yields, according to Rodrigo Catril, senior FX strategist at National Australia Bank. The dollar is positioned for a 0.7% weekly gain, its best performance since early April, although it is expected to decline by 2.5% over August due to cooling inflation and a slowing labor market.

Market participants are anticipating a September rate cut, but post-data, the likelihood of a 50-basis-point cut dropped to 34% from 38%, as per CME Group's FedWatch Tool. Core personal consumption expenditures price index, the Fed's preferred inflation measure, remains awaited. China's yuan also firmed to a 14-month high, nearing a rise of approximately 2% for August, driven by growing corporate demand amid expectations for U.S. rate cuts. The euro remained stable at $1.1075 following easing euro zone inflation, while sterling and the yen showed mixed movements.

(With inputs from agencies.)