The dollar index steadied near 102 on Friday as better-than-expected fourth quarter US GDP numbers raised hopes of a soft landing in the world’s largest economy, while investors cautiously await US PCE data for cues on the Federal Reserve’s interest rate path. The US economy expanded annually by 2.9% in the fourth quarter, beating forecasts for a 2.6% growth.
However, there were some signs of challenges to the economy, with most analysts expecting a mild recession by the second half of 2023, supporting bets for a less aggressive tightening from the Fed. Easing US inflation also reinforced the case for a smaller rate hike, with money markets now pricing an over 95% chance of a 25 basis point increase at the next policy meeting. Investors now look ahead to US PCE data, the Fed’s preferred inflation measure, with a lower-than-expected reading likely to pressure the dollar further.