Dollar Resilience, Sterling’s Rebound, and Germany’s Economic Struggles.

USD Section: The US dollar clung to a seven-week high against the euro, bolstered by Federal Reserve Chair Jerome Powell’s dismissal of an early March rate cut. Despite a shift in market expectations, Powell’s less-dovish stance tempered hopes for an imminent easing, causing the dollar index to hover around 103.75. Traders, now skeptical of a March cut with a reduced probability of 38%, still anticipate around 150 basis points of easing throughout the year.

GBP Section: Pound Sterling rebounded during the New York session as the US Automatic Data Processing reported a slowdown in labor demand. With US employers hiring only 107K workers in January, pressure mounted on the US Dollar. Investors anxiously awaited the US Federal Reserve’s monetary policy meeting, anticipating guidance on potential interest rate cuts. The GBP/USD pair traded sideways, with expectations for clearer direction post the Fed and Bank of England’s policy decisions.

EUR Section: Germany’s inflation rate fell to 2.9% y/y in January, a significant drop from December’s 3.7%. This decline, attributed to a slowdown in goods inflation, marked the lowest rate since June 2021. The European Central Bank’s aggressive interest rate hike contributed to easing inflationary pressures but also resulted in a 0.2% decline in GDP, indicating a technical recession. The eurozone narrowly avoided a recession, posting zero growth in Q4 after a -0.1% contraction in Q3. Preliminary CPI data for the eurozone is anticipated to show a drop from 3.4% y/y to 3.2%.