The U.S. dollar has had an eventful week, with a series of ups and downs influenced by various economic indicators and policy statements. This article provides an overview of the key events that shaped the dollar’s trajectory over the past week.

The Dollar Index: A Steady Climb

The Dollar Index, which measures the greenback’s strength against a basket of six other currencies, traded slightly higher at 105.115. This comes after the dollar steadied on Friday, following a dip in the previous session due to weak jobs data.

Jobless Claims and the Labor Market

The dollar’s steadiness can be attributed to its minor gains this week, despite losses on Thursday. These losses were triggered by data showing a larger-than-expected increase in weekly jobless claims.

Inflation: A Key Point of Contention

However, sticky inflation remains a key point of contention for the Fed. Several officials warned about this issue throughout the week, comments that ultimately boosted the dollar. San Francisco Federal Reserve President Mary Daly expressed “considerable” uncertainty about the direction of U.S. inflation in the coming months. She stated that unless the labor market falters, it would not be appropriate to adjust the rate if inflation remains at its current level. These comments have placed the upcoming consumer price index data, due next week, squarely in focus for more cues on interest rates.

Sterling Benefits from Strong Growth Data

In Europe, the GBP/USD gained 0.1% to 1.2534, recovering from its lowest level since April 24 on Thursday. This recovery was spurred by data released earlier on Friday, which showed that Britain’s economy grew by the most in nearly three years in the first quarter of 2024. The U.K. gross domestic product expanded by 0.6% in the three months to March, marking the strongest growth since the fourth quarter of 2021.

The European Central Bank’s Rate Cut

Meanwhile, the EUR/USD traded largely unchanged at 1.0783. The European Central Bank (ECB) has all but promised a rate cut on June 6, but there is uncertainty over how many further cuts the central bank will agree to this year.

USD/JPY Drifts Higher

In Asia, the USD/JPY rose 0.2% to 155.70, trading well above lows of 152 it had hit earlier in May. Traders now see the 160 level as the new line in the sand for Japanese government intervention.

USD/CNY and Potential Sanctions

The USD/CNY rose 0.1% to 7.2249, with the yuan weakening following reports that U.S. President Joe Biden was considering imposing fresh sanctions on certain Chinese industries, such as electric vehicles and batteries. While the economic impact of the tariffs was unclear, such measures could attract retaliation from China, further souring ties between the world’s two biggest economies.

In conclusion, the past week has seen the dollar dance to the tune of various economic indicators and policy statements. As we move into the next week, all eyes will be on the upcoming consumer price index data and its potential impact on the Fed’s interest rate decisions.