Ella 
In theory, improving U.S. economic performance could be good for the dollar. Still, the overall impact of improving U.S. GDP on the market, at least in terms of USD/JPY strength, is somewhat muted, as FX traders are tethered to strong U.S. economic growth and as inflation declines, U.S. Interest rate cuts may be implemented.
The extent to which this week’s data will ultimately affect the likelihood of a rate cut by the Fed in March is debatable. The message sent by Federal Reserve Chairman Powell at the press conference on January 31 is the next major event, which may determine whether the Federal Reserve will cut interest rates in the first quarter. But importantly, there are a lot of event risks to contend with before a major reversal in the dollar occurs, starting with today’s PCE deflator and the release of January employment and inflation data in early February. By March, the Fed will be dealing with an update on current data, which will easily outweigh this week’s data.
In other currency market news, the European Central Bank (ECB) kept interest rates unchanged for the third consecutive meeting on Thursday.
The results of the January ECB policy meeting were in line with broad market expectations, and few expected the ECB to adjust its monetary policy. The main question surrounds when European Central Bank President Christine Lagarde will turn to considering a rate cut. The answer to this question is unclear. Economic growth in the Eurozone has stagnated and inflation has fallen significantly, posing challenges for the European Central Bank to support the euro. Although taking into account factors such as rising energy and freight rates, the ECB’s stance did not significantly change market expectations. Traders currently expect an interest rate cut at the European Central Bank meeting in April, with market pricing showing an 80% chance of a rate cut by then.
