On the 16th, the US dollar index showed weakness in the foreign exchange market, mainly due to the unexpected boost in market confidence from the economic data released by the EU and the UK. The dollar weakened against the euro, British pound, and Swedish krona, but slightly strengthened against the yen, Swiss franc, and Canadian dollar.
US Dollar Index and Major Currency Performance
The US Dollar Index, which measures the dollar against six major currencies, briefly rebounded on the 16th but then declined, experiencing narrow fluctuations throughout the day, ultimately closing down 0.13% at 106.859.
In the eurozone, data released by S&P Global showed that the composite business climate index for December's manufacturing and service sectors was 49.5, significantly higher than the expected 48 and November's 48.3, indicating initial signs of economic recovery. This influence caused the euro to rise slightly against the dollar from the previous trading day's 1.0495 dollars to 1.0510 dollars.
The UK's economic data also showed stable performance. The composite business climate index for December's manufacturing and service sectors was 50.5, exceeding expectations and remaining level with November's data. This result alleviated the pessimism from the previous unexpected decline in the UK GDP, pushing the British pound up against the dollar from 1.2617 dollars to 1.2684 dollars. The pound also strengthened against the euro and Swiss franc.
Yen and Widening US-Japan Interest Rate Gap
The yen continued to weaken, with the dollar breaking through the 154 mark against the yen, reported at 154.13, higher than the previous trading day's 153.69 yen. The market anticipates the Bank of Japan to keep rates unchanged this week, and the widening US-Japan interest rate gap further stimulated the dollar's upward momentum against the yen. Additionally, the dollar has closed higher against the yen for five consecutive trading days, with the 50-day moving average soon to cross above the 200-day moving average, forming a "golden cross" signal. Analysts pointed out that if the Bank of Japan maintains a dovish stance, the dollar may continue to challenge the previous high of 156.30 against the yen. However, trend lines near 151.50 and 151 may serve as short-term support levels.
Other Currencies and Market Dynamics
The Swiss franc fell slightly against the dollar, with the dollar closing at 0.8948 francs, higher than the previous trading day's 0.8927. The Canadian dollar also showed weakness, with the dollar closing at 1.4237 against it, slightly up from the previous day's 1.4233.
The Swedish krona performed prominently, benefiting from positive EU economic data, with the dollar falling from 10.9800 to 10.8870 against the krona.
Limited Impact of US Economic Data
In the US, data released by S&P Global showed that the composite business climate index for December's manufacturing and service sectors was 56.6, exceeding the market's expectation of 54.6 and November's 54.9. Among them, the service sector index performed well, rising to 58.5, but the manufacturing index was below expectations at 48.3. This mixed performance failed to provide clear support for the dollar, instead increasing market bets on the Federal Reserve's dovish rate cuts in 2024.
German Political Risks and Euro Performance
Furthermore, Germany's political situation attracted market attention. Chancellor Scholz failed to gain majority support in the Bundestag's confidence vote, and a new federal election is planned for February 23 next year. However, this event had a limited impact on the euro exchange rate, mainly supported by improvements in economic data.
Market Outlook
Analysts believe that as economic data from Europe and the US gradually improve, the dollar may face further pressure. Meanwhile, the widening US-Japan interest rate gap may continue to push the dollar higher against the yen. In the future, the market will focus on the Bank of Japan's policy signals, as well as the Federal Reserve's rate path adjustments for 2025 and 2026, to determine the medium to long-term direction of the dollar.
