Asian session review: the US dollar is showing negative dynamics

During today's Asian trading, the US dollar declined moderately against major currencies, retreating from the one-month high reached yesterday on the back of strong US data, which weakened expectations of easing the Fed's monetary policy.

The US Dollar Currency Index (DXY), which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona) fell by 0.21% to 103.23. Yesterday, the index reached its highest level since December 13 after data showed that retail sales rose 0.6% in December after rising 0.3% in November. Economists had forecast sales growth of 0.4%. Excluding cars, gasoline, construction materials and food services, the so-called core retail sales increased by 0.6%, as in the previous month, and exceeded expectations (+0.4%). In general, the data indicated that consumer spending in the United States remained high in the last month of 2023, which is not an argument in favor of the Fed's early start of interest rate cuts. According to the CME FedWatch Tool, markets see a 59.5% probability of a 25 basis point rate cut at the Fed meeting in March and a 93.1% probability of a rate cut in May, with 150 basis points of cuts priced in for this year.

The yen rose 0.2% against the US dollar after falling 0.66% yesterday, to its lowest level since November 30. Investors have been steadily pricing out hawkish Bank of Japan wagers, not least due to the devastating New Year's Day quake in central Japan. The next meeting of the Bank of Japan will be held on January 23, while experts doubt that politicians will make any changes to the policy parameters. Most likely, the “turnaround” of the policy will occur in April, when the Bank of Japan will raise interest rates by 10 bps, to 0%. Experts also predict that policymakers will abandon bond yield curve control in April.