The influence of the US Dollar (USD) in the foreign exchange (FX) market is anticipated to remain steady in the upcoming week. This stability precedes the impending release of the US Personal Consumption Expenditures (PCE) rates for January, which is set to occur next Friday. Market participants are closely monitoring these rates, given their potential impact on future monetary policy decisions.
In February, the S&P Global Services Purchasing Managers' Index (PMI) slipped into contraction territory, falling below the critical 50 mark. This downturn in business activity led to a loss of momentum for the USD. As a result, the GBP/USD currency pair regained its footing, trading above 1.2650 during the latter part of Friday.
Economic indicators suggest that the Federal Reserve might consider cutting interest rates more aggressively than previously anticipated, aligning with similar actions by the United Kingdom. Meanwhile, the benchmark 10-year US Treasury bond yield persisted in negative territory, remaining below 4.5%. The XAU/USD, representing gold against the dollar, managed to hold its ground amid these negative yields.
On Friday, the EUR/USD pair showed signs of recovery, moving towards 1.0500 during the American session. Despite this rebound, overall business activity within the private sector expanded at a softer pace than expected in early February. This muted expansion has left repo rates in the US more attractive while bills are projected to appreciate.
The unpredictability of US President's economic stances continues to keep traders vigilant. This uncertainty has contributed to fluctuations in various financial instruments and currency pairs. Notably, gold maintained its position above $2,930 after experiencing a correction from its record-high exceeding $2,950 on Thursday.
Meanwhile, despite some mid-week volatility, the EUR/USD pair remained poised to conclude the week with minimal changes. The market's focus now shifts towards next week's PCE rate release, which could provide further insights into inflation trends and influence future policy decisions by the Federal Reserve.