The US dollar held firm awaited PCE data and the euro fell on hopes of a rate cut by the European Central Bank

(1) The U.S. dollar held firm on Friday after rising overnight as traders weighed how an unexpected upside in U.S. Q4 GDP data could affect the Fed’s Intrerest Rate path and awaited key personal consumption expenditures (PCE) price index inflation data later today. (2) At the same time, the euro has been on the defensive since the latest monetary policy meeting held in Europe Central Bank Thursday to maintain the Intrerest Rate at a record 4%. (3) The official gross domestic product (GDP) estimates released by the United States showed that GDP grew at an annualized rate of 3.3% in the fourth quarter, exceeding market expectations for 2%. The data also showed a further weakening of inflationary pressures. (4) Charu Chanana, head of FX strategy at Saxo Bank in Singapore, said, “The U.S. GDP data reaffirmed hopes for a soft landing for the U.S. economy, but the bond market focused more on the slowing part of the report on inflation, which pushed yields lower.” However, the dollar remained firm." (5) The dollar index, which measures the greenback’s Exchange Rate against a basket of major currencies, hovered around 103.50 after climbing about 0.2% overnight. The dollar index has risen about 2% so far this year. U.S. Treasury yields slipped, with the yield on the 10-year Treasury note, the benchmark, falling to 4.09% in early Asia. (6) According to the CME FedWatch tool, the market is betting on a 50% chance of a rate cut in March, down from 75.6% a month ago. Chanana also said, “If today’s December PCE is weaker than expected, the pressure on yields and the dollar could increase.” ” (7) EUR/USD was last traded at 1.0845, having fallen to a six-week low of 1.0821 on Thursday. The European Central Bank on Thursday kept Intrerest Rate unchanged at a record high of 4% as expected and reaffirmed its commitment to fighting inflation, even as the time to begin easing policy approaches. (8) Chanana said the Central Bank’s response to the market’s bets on a rate cut in April was “less direct, but had a positive direction on wages,” which pushed up market expectations and “underscored the bearish outlook for the euro.”