War Clouds, Fed Hawks Helped Dollar Firm Up Last Week

(RTTNews) - An escalation in geopolitical tensions in the Middle East coupled with hawkish commentaries from Fed officials supported the Dollar during the week spanning April 15 to 19. The Dollar gained against the pound, but the Australian Dollar as well as the Japanese yen slipped against the euro. The multi-currency Dollar Index also increased during the week.

The Dollar Index or DXY, which measures the dollar's strength against a basket of 6 currencies gained 0.10 percent during the week ended April 19.

A more-than-expected reading on retail sales in the U.S. released at the onset of the new week compounded the anxiety triggered by the hotter-than-expected inflation data released in the previous week and the geopolitical flare-up over the weekend. Data released by the U.S. Census Bureau on Monday showed Retail sales in the U.S. rising 0.7 percent month-over-month in March versus an upwardly revised 0.9 percent gain in February and surpassing market forecasts of 0.3 percent.

The Fed Chair Jerome Powell in his speech on Tuesday hinted that the Fed was in no hurry to cut rates as restrictive monetary policy needed time to work. The Fed Chair's concerns about a lack of expected progress in inflation goals came amidst sticky inflation readings, resilient job market updates and buoyancy in retail sales rebound and helped lift the Dollar Index to the week's high of 106.52. Though the index cooled to 105.74 by Thursday, escalating geopolitical tensions boosted safe-haven demand for the dollar, lifting it to a high of 106.35 on Friday. The Index eventually closed at 106.12 versus 106.01 a week earlier. Better-than-expected GDP readings from China however limited the Dollar's gains.

The U.S. Dollar slipped against the euro during the week ended April 19 amidst growing hints that the European Central Bank was gearing for a rate cut in June. The EUR/USD pair rose to 1.0654 on April 19 from 1.0642 a week earlier, recording an increase of 0.11 percent. During the week, the pair touched a low of 1.0601 on Tuesday and a high of 1.0690 on Thursday. Data released on Tuesday had showed the ZEW Indicator of Economic Sentiment for Germany rising to 42.9 in April from 31.7 in March, beating forecasts of 35.9.

The U.S. Dollar surged against the British pound during the week ended April 19, even as markets expected the Bank of England to start cutting rates ahead of a Fed rate cut. Data released during the week showed a more-than-expected reading of unemployment rate, a less-than-expected decline in inflation, and an unexpected dip in retail sales. The GBP/USD pair which had closed at 1.2450 on April 12, dropped to 1.2371 by April 19. The pair touched a high of 1.2500 on Monday but dropped to 1.2365 on Friday.

The Australian Dollar too slipped 0.71 percent against the U.S. Dollar during the week ended April 19. The AUD/USD pair which had closed at 0.6463 on April 12 jumped to 0.6495 on Monday before dropping to 0.6362 on Friday. The pair recovered and finally closed at 0.6417 on Friday.

The week also saw the Japanese yen plunge against the U.S. Dollar. The USD/JPY pair which was at 153.28 on April 12 jumped to 154.63 in a week's time. The pair had touched a low of 152.99 on Monday and a high of 154.80 on Tuesday amidst lingering fears of a regulatory intervention to slow the yen's depreciation. According to the data released on Thursday, inflation in Japan eased along expected lines, but remained well above Bank of Japan's target of 2 percent.

On the horizon are key economic data releases ranging from Australia's inflation update on Tuesday, GDP update from the U.S. on Thursday, as well as the PCE-based inflation readings from the U.S. on Friday. Bank of Japan's interest rate decision is also due on Thursday.

Amidst the anxiety about a potential postponement of rate cuts by the Fed, the Dollar index has increased to 106.26. The EUR/USD pair has decreased to 1.0640. The GBP/USD pair has also fallen to 1.2311. The AUD/USD pair increased to 0.6437. The USD/JPY pair is meanwhile hovering near 154.70.