The US Dollar is getting longer, what is actually happening in the market?


The US dollar traded steady on Monday after strengthening for a fifth consecutive week on strong inflation data, while the yen traded near the psychologically important 150 level.

US markets are closed today for the President's Day holiday, with trading volumes likely to be low throughout the day. The US dollar index, which tracks the US dollar against six major currencies, was little changed at 104.157, after strengthening 0.18% in the previous week.

The US dollar strengthened to its highest level since mid-November on Tuesday at 104.97 after figures showed US inflation was stronger than expected in January, prompting investors to reduce the number of interest rate cuts they expect from the Federal Reserve this year. The US dollar began to weaken on Thursday after data showed retail sales fell further last month.

The euro, on the other hand, remained unchanged at $1.0777, after falling to a three-month low of $1.0695 last week. Sterling strengthened 0.1% to $1.2612. The survey-based purchasing management index data, released on Thursday, will provide an insight into the health of the European zone and the UK economy in February.

The minutes of the Fed's final meeting, scheduled for early Thursday morning, will likely be the key indication for investors this week. Investors expect around 90 basis points of interest rate cuts this year, based on money market fixing, down significantly from around 145 basis points in early February.

The US dollar was down 0.16% against the yen on Monday, trading at 149.97 yen. The US dollar has traded around 6% higher against the yen this year as Japan has maintained very loose monetary policy. This has indirectly presented a large gap between the bond yields of the two countries which has increased the attractiveness of the US dollar.

The rise has fueled speculation among investors that Japanese authorities may intervene to strengthen the yen. Finance Minister Shunichi Suzuki last week warned that "rapid movement is undesirable for the economy".