Dollar ended the first month of the near year with a stunning performance, leading all major rivals by a considerable margin, while yen ended the month at the tail end of the list, marking the worst performance since February 2023.
The powerful start by the dollar came amid the bullish stance by the Federal Reserve, which hurt the odds of an early interest rate cut in March.
And it was all but confirmed at this week’s Fed meeting that indeed the Fed is taking a bullish stance on monetary policy.
Additionally, a string of recent strong US data and bullish remarks by Fed officials underpinned the dollar further.
Let’s now take a quick look at the performance of all major eight currencies in January 2024.
The US dollar was at the forefront in overall performance, followed by the sterling, then Canadian dollar, with yen at the end.
The US Dollar
The US dollar overwhelmed the yen in particular, rising 4.2% and hitting a two-month high on January 19 at 148.80.
The greenback also rallied 3.75% against the Aussie, and 3.2% against the New Zealand dollar.
It rallied 2.4% against the Swiss franc, and 2% against the euro, recently hitting a seven-week high at 1.0795.
It also added 1.4% against the Canadian dollar, and 0.35% against the pound.
Strong Data
Across January, a stream of strong US data on labor market, consumer spending, GDP growth, and housing all underpinned the dollar and showcased the flexibility of the world’s largest economy.
The data also showed some uptick in inflationary markets, with consumer spending rising once more, raising pressure on the Fed.
The Fed
Fed officials took a clearly bullish stance throughout the month, and asserted a cautious stance when dealing with interest rates in the future.
Many of them supported no changes in interest rates until inflation is brought close to 2%.
Then came the Fed’s January policy meeting, at which it held interest rates flat as expected this week at below 5.5%, already the highest since 2001.
The Fed said the US economy is performing better than expected, which convinces the Fed to slow down when it comes to changing its monetary policy, especially as achieving the 2% inflation target takes more time.
Fed Chair Jerome Powell said on Wednesday that FOMC members are committed to bringing inflation back to the 2% target, noting the strength of the economy, which would allow for a rate cut “sometime”.
US Rates
Following the meeting, the odds for a 0.25% Fed interest rate cut in March tumbled from 52% to 35%, down from over 80% just a month ago.
Traders now expect a total of 140 basis points of interest rate cuts in the US throughout 2024, down from 160 basis points in previous forecasts.
Yen
On the other hand, the yen is facing wild losses against major rivals, as Bank of Japan holds on to its bearish and ultra-easy stance on policy.
Yen marked heavy monthly losses in January amid concerns of the mounting policy and interest rate gap between the bearish BOJ and most other central banks worldwide.
BOJ
As expected, Bank of Japan voted to hold interest rates unchanged at the January 23 meeting, while keeping interest rates at minus 0.1%.
It said the chances of achieving a sustainable 2% inflation rate is increasing gradually, and it remains committed to monetary stimulus to underpin the economy.
The BOJ expects average GDP growth to slip to 1.8% in 2023, while expecting core inflation in 2023 at 2.8% overall.
Japanese Rates
Recent consumer prices and wages data from Tokyo shows the decline of inflationary pressures on BOJ policymakers, which convinced markets that interest rates will remain in negative zone for an extended duration this year.
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