The United States dollar index that is also known as DXY shot up nearly 1% to close above the 102.00 threshold in Thursday trading. The release of some of the latest US economic data was not encouraging.

However, a re-evaluation of global interest expectations and market risks benefited the American dollar. Dixie's position eased slightly to 102.01 when this news was written at the beginning of the Asian session on Friday (May 12).

However, the US dollar still dominated several major currency pairs. AUD/USD continues to be pressured at a week-low, while EUR/USD pair struggles near a three-week low.

Two medium-impact economic reports released in the New York session yesterday missed the expectations. The number of weekly jobless claims jumped to the highest number in 1.5 years.

Inflationary Pressure is Declining

Meanwhile, the PPI inflation data also posted the smallest annual growth in more than two years. All of this indicates that inflationary pressures are declining, but have not yet reached the Fed's target. 

That is, the Fed does not need to raise interest rates again in the near future but is likely to maintain them at high levels at this time. The conclusion is the same as of the Fed's FOMC statement and several previous US economic reports.

That is why; it does not have a big effect on the greenback so far. On the other hand, the market assessed that the direction of monetary policy in several major countries was not as hawkish as previous expectations. 

The gap between the Fed's interest expectations and several major central banks going forward narrowed. This situation is increasing demand for the U.S. dollar. 

Europe Continued Rate Hike can be More Modest 

The analysts think that the market is starting to rethink the prospect of the Fed cutting interest rates because inflation. While lower, that was still remains on the high side. 

The dollar could rise if the market clears speculation of a rate cut. It was a scenario that would allow it to maintain its yield advantage for longer as said by Joe Manimbo, a senior market analyst at Convera. 

After the ECB and Bank of England meetings some days ago, the market participants may started to feel that continued rate hikes from Europe can be more modest than previously thought.

If some people question the Fed's rate cuts, and at the same time, the market sees less potential rate hikes overseas, all of that helps level the playing field in forex. 

Post-Pandemic Recovery Weighed on Risk Sentiment 

China's economic data on Thursday also pointed to a staggering post-pandemic economic recovery. This weighed on market risk sentiment, while pressuring currencies that are closely related to that country. 

The data overnight from China was a bit surprising. And if people juxtapose that with the opening hype of the post-pandemic economy, that’s been going on for a couple of months.

In fact, that condition hasn't really happened yet, as said by Erik Bregar of Silver Gold Bull Toronto. That is why; this feels like a reaction to broader risk-off action. 

Many analysts recommended to buy dollars because it is a place safer bets. Or, people may give up some riskier bets.

GBP/USD fell Almost a Percent 

The Bank of England (BoE) yesterday raised its interest rates where the value was in line with market expectations. However, the pound sterling exchange rate actually weakened against all other major currencies. 

GBP/USD fell almost one percent to a low level of 1.2507 due to profit-taking that wracked the currency. Meanwhile, some analysts are no longer optimistic about its prospects ahead.

The results of the BoE's Monetary Policy Committee meeting were actually in line with previous market forecasts. The BoE raised their interest rates by 25 basis points from 4.25% to 4.50%. 

Furthermore, they also raised projections for UK economic growth and inflationary pressures going forward. It was confirming expectations of further rate hikes in the months ahead.