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European session review: USD strengthens as U.S. economic data rolls in

TimeCountryEventPeriodPrevious valueForecastActual
09:00SwitzerlandCredit Suisse ZEW Survey (Expectations)February-19.5-1710.2

USD appreciated against other major currencies in the European session on Wednesday as investors prepared to receive more economic releases from the U.S., which could hint at the  Federal Reserve’s future interest rate path.

The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, increased 0.27% from the previous close to 104.11.

Later in the day, investors will pay attention to the second estimate of the U.S. GDP growth in the fourth quarter of 2023 and preliminary data on wholesale inventories for January. However, the most crucial data - the January core personal consumption expenditures (PCE) price index, the preferred measure of inflation of the Fed - is set to come tomorrow. 

Economists forecast the core PCE price index likely slipped to 2.8% YoY in January 2024 from 2.9% YoY in December 2023. Hotter-than-expected reading could prompt markets to reduce again their bets on interest rate cuts by the U.S. central bank this year.

According to the CME FedWatch Tool, markets now predict three rate decreases of 25-basis points by the Fed in 2024, with the first move expected in June. At the beginning of the year, markets foresaw six rate cuts for 2024, with the first reduction coming in March. 

The recalibration of markets' expectations on the scale of interest rate cuts in the U.S. this year occurred against the backdrop of stronger-than-expected economic data, specifically January CPI figures, and the warnings of the Fed officials against cutting rates too soon and too much.

Other noteworthy releases, slated for the remainder of the week, include weekly jobless claims statistics, January pending home sales, and ISM’s report on economic activity in the manufacturing sector.

Yesterday's set of data releases showed a larger-than-anticipated drop in the U.S. durable goods orders in January (actual -6.1% MoM versus economists’ forecast of -4.5% MoM) and an unexpected decrease in the Conference Board's consumer confidence index (to 106.7 in February from a downwardly revised 110.9 (from 114.8) versus economists’ forecast of 115.0), supporting an argument for a monetary policy easing by the Fed.

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