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    European Session – Dollar stronger despite soft US GDP, supported by post-BOJ wave of buying

    The US dollar was broadly stronger today, especially against the European currencies but did not make as much headway versus the commodity currencies.

    The euro was only briefly supported by better-than-expected Eurozone inflation data and the currency was unable to hold the key $1.09 handle. It subsequently fell against the dollar to 1.0832 from 1.0925.

    The Eurozone headline inflation rate rose from 0.2% year-on-year in December to 0.4% in January, with the core rate ticking up to 1.0%. Despite the inflation rate rising, this is unlikely to change expectations of more ECB stimulus as early as March. This expectation will likely weigh on the euro.

    The dollar rallied strongly against the yen today and was not impacted by the weak US GDP data but instead was subjected to a wave of buying after the Bank of Japan’s surprise shift to negative rates. USD/JPY hit as high as 121.68 yen in early US trading. The day’s low before the Bank of Japan decision was 118.47 yen.

    Oil managed to hold above the $33 a barrel mark and is expected to end a second week of gains.

    The main data out of the US today was fourth quarter growth figures. Weaker-than-expected Q4 GDP data raised expectations that the Federal Reserve would go slow on future interest rate hikes. This expectation helped US stocks to rise.

    GDP rose at a 0.7% rate in the fourth quarter versus 0.8% expected and much lower than the 2% growth pace seen in the third quarter.

    Many analysts cited that the slowdown to growth could be attributed to rising inventory and a strong dollar coupled with weak a global economic outlook which hurt US exporters.

    Also out of the US today was the final reading on the Michigan Consumer Sentiment Index. It came in at 92.0 points in January versus the 93 points expected and was down from earlier estimates of 93.3. However it was up from December’s 92.6.

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