The U.S. dollar experienced a slight decline on Friday; however, it was poised to achieve another weekly gain following stronger-than-anticipated economic data that diminished expectations for early interest rate reductions by the Federal Reserve. At 04:05, the Dollar Index, which monitors the performance of the greenback against a selection of six other currencies, was trading 0.1% lower at 99.095. However, it was on track for a 0.2% increase this week, marking the third consecutive week of gains. Recent economic data has positively impacted the U.S. currency this week, notably illustrated by U.S. initial jobless claims unexpectedly dropping to 198,000 last week, which is below the anticipated 215,000, underscoring the ongoing strength of the labor market. The data supported prevailing market perspectives that the Fed is likely to maintain policy rates for an extended period, leading traders to adjust their expectations for the initial rate cut to around mid-year.

“The dollar is drifting higher this week on probably what is best described as a macro move,” stated analysts in a note. “U.S. data has come in on the firmer side, e.g. retail sales and jobless claims, while the Fed’s Beige Book presented a view of a gently expanding economy and no immediate threat to the jobs market.” Remarks from multiple Federal Reserve officials. Chicago Fed President Austan Goolsbee stated on Thursday that, given the substantial evidence of stability in the job market, the central bank’s priority should be to reduce inflation. Kansas City Fed President Jeff Schmid on Thursday described inflation as “too hot,” whereas San Francisco Fed President Mary Daly noted that the latest U.S. economic data appears promising. “The data calendar is relatively quiet today, and there seems to be no reason to argue with a gently bid dollar,” analyst noted.

In Europe, EUR/USD moved up to 1.1613, following the release of data earlier Friday indicating that German consumer prices remained stable in December, increasing by only 1.8% year-over-year, which is below the European Central Bank’s medium-term target of 2.0%. The ECB has maintained its rates since concluding a swift rate cut cycle in June and indicated last month that it is not rushing to alter its policy again, given that economic growth is unexpectedly robust and inflation no longer appears to be a concern. “The eurozone data calendar appears sparse, and EUR/USD may gradually move towards 1.1555/65 with little excitement,” analyst noted. GBP/USD increased by 0.1% to reach 1.3392.

In Asia, USD/JPY decreased by 0.3% to 158.19, as the yen experienced a slight rebound from its near 18-month lows, supported by verbal warnings from Japanese policymakers intended to mitigate the significant declines in the yen. Japanese Finance Minister Satsuki Katayama stated on Friday that Tokyo “won’t rule out any options” to address the yen’s weakness, which may include possible coordinated intervention with Washington. “Suffice to say that USD/JPY looks like a volatile story over the next month and that even at 8.5%, one-month traded USD/JPY volatility does not seem especially expensive,” said analyst. In other markets, USD/CNY increased by 0.1% to 6.9681, AUD/USD advanced by 0.1% to 0.6704, and NZD/USD appreciated by 0.3% to 0.5760.