Dollar moves higher, just above seven-month lows

20 Jan 2023

The Dollar remained around seven-month lows on Friday on investor fears an economic slowdown is on the cards.

The greenback rose 0.2% against six major peers to 102.17, just above Wednesday's seven-month dip.

The Dollar index declined 1.3% in 2023 after falling 7.7% in Q4 2022 as investors increased bets of the Federal Reserve decelerating the pace of rate hikes.

Elsewhere, the Japanese Yen suffered the impact of the Dollar's strength, with USD rising to 129.26. 

Analysts forecast the Bank of Japan is moving closer to a shift to a tighter policy stance. This has led to a rally in the Yen, pushing the Dollar/Yen down by 14% over the last three months.

Japan's core consumer prices last month increased 4.0% from the year before, twice the central bank's 2% target, as per data published on Friday.

"Japan now has an inflation problem that it hasn't had in nearly 40 years," said CMC Markets chief strategist Michael Hewson said.

"For me, the die is cast - Dollar/Yen will go lower, and it's a question of how quickly," he added.

Earlier in the week, the Bank of Japan held its ultra-loose monetary policy, despite investor forecasts the bank may indicate a shift in stance.

"We now expect the BOJ to exit from yield curve control and negative interest rate policy by the end of June, conditional on a solid pick-up in Japan's wage growth," according to Carol Kong, Commonwealth Bank of Australia currency strategist.

In addition, the Sterling declined 0.4% to $1.2342 on Friday as UK data revealed a surprise fall in retail sales last month, as consumers purchased less yet spent more. At the same time, the Euro stayed flat at $1.0834.