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Dollar Rises On New Data Indicating Fed’s Hawkish Stance

On Thursday, the dollar rose against the euro as data revealed the US economy’s continued strong growth in the fourth quarter, supporting the Federal Reserve’s potential prolonged hawkish stance. 

The Commerce Department’s advance estimate indicated that GDP grew at an annualized rate of 2.9% during the last quarter, which exceeded economists’ predictions of a 2.6% growth rate. 

Additionally, the Labor Department reported a decrease of 6,000 in initial claims for state unemployment benefits, reaching a seasonally adjusted 186,000 for the week ending January 21st

The recent data suggest that the economy remains strong in spite of the Federal Reserve’s monetary tightening measures, according to analysts. 

A significant factor in this growth was an increase in inventories, which is likely to decrease in 2023. This reinforces the expectation of the Fed continuing to make 25 basis point moves. 

The euro was down 0.23% against the dollar at $1.08895, close to the nine-month high of $1.09295 reached on Monday. 

Central Bank Meetings

The dollar also rose 0.54% against the yen, at 130.275 yen. Attention will now shift to upcoming central bank meetings, including those of the Federal Reserve and the European Central Bank.

Traders anticipate the Federal Reserve to increase rates by 25 basis points next Wednesday, a decrease from the 50 basis point increase in December. 

This comes as the European Central Bank is expected to raise their key rate by half a percentage point next week. 

The British pound remained mostly unchanged against the US dollar, on track for a small gain for the week, its third consecutive weekly rise, despite concerns about the Bank of England’s ability to control inflation without negatively impacting an already recessed economy. 

The Australian dollar reached a new 7-month high of $0.71425, as there are growing expectations for more interest rate hikes by the Reserve Bank of Australia, following data that showed Australian inflation reached a 33-year high last quarter. 

The Canadian dollar rose to a two-month high against the US dollar on Thursday, after the Bank of Canada raised interest rates as expected, possibly marking the end of their aggressive tightening campaign. 

Bitcoin remained mostly unchanged at $23,123, continuing to stabilize after a surge of about a third in value since early January, following significant losses from the collapse of the FTX crypto exchange.

New Home Sales

The release of New Home Sales by the Census Bureau is an important indicator of the overall health of the economy. This report measures the annualized number of new single-family homes sold in the previous month. 

The significance of this data lies in the fact that the purchase of a new home has a ripple effect on various other industries. 

For instance, when a new home is sold, it leads to the purchase of furniture and appliances, the sale of a mortgage by the financing bank, and commission earned by the brokers who facilitated the transaction. 

As such, traders pay close attention to this data as it provides insight into the strength of the housing market and the broader economy.

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Author

  • Phyllis Wangui

    Phyllis Wangui is a Financial Analyst and News Editor with qualifications in accounting and economics. She has over 20 years of banking and accounting experience, during which she has gained extensive knowledge of the forex, stock news, stock market, forex analysis, cryptos and foreign exchange industries. Phyllis is an avid commentator on these topics and loves to share her insights with others through financial publications and social media platforms.