On January 16, the foreign exchange market experienced significant turbulence as the US dollar fell sharply under a confluence of complex factorsThis decline acted like a domino effect, prompting notable rallies in various non-dollar currencies, which generally celebrated this newfound strengthHowever, amidst this wave of appreciation of other currencies, the British pound emerged as an anomalyContrary to almost all other non-dollar currencies, the pound showed no signs of recovery against the dollar; instead, it continued to remain weak.

The downturn in the dollar coincided with disappointing figures from the US retail sales and initial jobless claims released on that same dayThese figures combined with comments from Federal Reserve Governor Christopher Waller provided the primary impetus for the dollar’s declineThe US Commerce Department reported a mere 0.4% increase in retail sales for December 2024, a significant drop from the market's expectation of 0.5%. Retail sales figures are crucial indicators of consumer market vitality in the United States, which relies heavily on consumer spending—accounting for around 70% of its GDPThis underwhelming growth clearly signals a weakening in consumer momentum, which undoubtedly clouds the outlook for US economic growth and erodes market confidence in the resilience of American economic dynamics.

In addition to these discouraging retail figures, data released by the US Labor Department raised additional concernsThe week ending January 11 saw a rise of 14,000 initial jobless claims, bringing the total to 217,000, which is far above the anticipated 210,000. An increase in first-time claims for unemployment benefits typically signals fluctuations in the labor market, fueling further anxiety over the US economic landscape

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Previously, the US economy had been buoyed by a strong job market and consistent consumer spending, which helped maintain the perception of robust economic growthHowever, with the dismal retail sales and jobless claim figures, previous optimistic expectations held by the market have crumbled, leading to a shaky investor confidence in the overall US economy.

Compounding the negative economic data, Waller's remarks in a speech stirred further waves in the foreign exchange marketHe explicitly suggested that the Federal Reserve could consider implementing rate cuts in the first half of the year, with the possibility of beginning this process as early as MarchHe also indicated that if subsequent economic data remained stable, there could be room for three to four rate cuts within the yearThis statement strengthened market expectations for future rate cuts by the Federal ReserveIn the foreign exchange world, interest rates and currency values are intricately linked—the anticipation of a potential rate cut by the Federal Reserve implies diminished returns on dollar-denominated assetsConsequently, investors tend to divest from the dollar in search of assets with higher yields, leading to a massive sell-off that directly exerts downward pressure on the dollar's valueAs a result, the dollar index, which measures the dollar against six major currencies, fell below the 109 threshold, closing at 108.97 in the forex market.

Yet, in a surprising twist amidst the weakening dollar, the British pound continued to struggle, unable to break free from its weak stateAnalysts at Société Générale highlighted that the main reason for the pound's decline against the dollar stemmed from a slew of underwhelming economic data released in the UKFor instance, the UK’s manufacturing Purchasing Managers' Index (PMI) has persistently remained below the neutral level of 50, indicating that manufacturing activity in the UK is contracting

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