Weekly Market Summary: U.S. Dollar Strength, ECB Rate Cuts, and Currency Movements

Last week, the U.S. Dollar Index (DXY) did well, reaching 11-week highs near 103.8 on Friday. This marked its third straight week of gains. The index went up about 2.71% during the week, thanks to strong U.S. economic reports and a more confident approach from the Federal Reserve regarding interest rates. 

The interest rate cut by the European Central Bank (ECB) gave the U.S. dollar some extra support. However, the push for the dollar's increase is still weak. The further upside is capped by a strong appetite for risk and low U.S. Treasury yields. The Japanese yen showed a minor pullback due to the BOJ intervention. 

Sterling performed well in the past two days after upbeat UK retail sales. BOE’s policy outlook remains uncertain due to mixed UK economic data. While the Australian dollar showed momentum after upbeat jobs data. The absence of specific actions in China’s recent stimulus plans is still causing pressure on the Australian dollar (Aussie). 

The euro was one of the worst performers last week due to ECB monetary policy. During this week's meeting, the European Central Bank lowered its policy rate by 25 basis points to 3.25% and noted that the decline in inflation is progressing as expected. Given the measured comments from the ECB and a sluggish economic environment, we anticipate that the ECB will continue to reduce rates at each meeting until at least next March. 

 Major economic data to watch this week

BOC monetary policy (Wednesday), US new home sales (Thursday), Eurozone PMI (Thursday), Canada retail sales, and US durable goods on Friday.