Dollar steady amid surprising US economic growth data

US dollar remained stable on Friday as traders assessed its potential impact on the Federal Reserve's rate trajectory. Simultaneously, the market awaited crucial inflation indicators for further insights. Meanwhile, the euro witnessed downward pressure as traders increased their expectations of an April rate hike following the European Central Bank's (ECB) recent monetary policy meeting.

The latest official data on the advance GDP estimate in the United States showed 3.3 per cent annualised growth rate in the last quarter, surpassing the consensus forecast of 2 per cent. The data also indicated a further easing of inflation pressures. Charu Chanana, Head of Currency Strategy at Saxo in Singapore, noted that the bond market focused on the disinflationary aspect of the report, leading to lower yields. However, the US dollar remained resilient.

The dollar index, measuring the greenback against major currencies, hovered around 103.53 during Asian hours after a 0.2 per cent overnight climb. Contrarily, the benchmark US 10-year Treasury yield slid to 4.11 per cent.

Chanana commented, "Pressure on yields and the dollar could increase if December PCE (personal consumption expenditures) comes in softer than expectations today."

With the dollar having gained around 2 per cent year-to-date, market expectations have moderated compared to late last year. The CME FedWatch tool indicates a 50 per cent chance of a rate cut in March, down from 75.6 per cent a month ago.

The euro faced downward pressure, trading at $1.08385, albeit above the six-week low of $1.08215 reached on Thursday. The ECB, as anticipated, maintained its policy stance, but traders increasingly bet on an interest rate cut from April, interpreting policymakers' comfort with the inflation outlook.

Sterling showed a 0.10 per cent decline, trading around $1.2698, with the Bank of England set to announce its interest rate decision next Thursday.

In Japan, the yen fluctuated in the upper 147 range against the dollar, closing at 147.77. Data revealed core inflation in Tokyo slowed to 1.6 per cent in January, below the Bank of Japan's 2 per cent target.

(With Reuters inputs)