Foreign exchange trading reminder: Northern Ireland is on the rise, the pound has its biggest gain against the dollar in six weeks, and the dollar has retreated slightly

On Tuesday (February 28), the dollar index fluctuated narrowly at the beginning of the Asian market, and is currently trading around 104.65. The dollar retreated from a seven-week high on Monday, following the decline in US Treasury yields. Investors consolidated gains after the dollar's recent rise, and durable goods orders fell more than expected in January, while waiting for US employment and consumer price data in February. In addition, British Prime Minister Sunak announced an agreement with the European Union to amend the original Northern Ireland Protocol. The pound rose 1.04% against the dollar on Monday, recording its largest one-day gain in six weeks.

US durable goods orders fell 4.5 per cent in January, a sharper-than-expected fall, partly reversing a Boeing-led surge in December that exacerbated the dollar's decline. Durable goods orders rose 5.1 per cent in December.

Analysts said the report weakened some of the hawkish tendencies in U.S. interest rates, but they still expect rates to rise higher and stay there longer.

Joe Manimbo, a senior market analyst at Convera, said February is coming to an end, with the dollar climbing nearly 3 percent this month as investors consolidate their recent positions on stronger-than-expected U.S. economic data.

"Investors are taking some profits," he said. "We've seen a lot of data so far, all better than expected, and that's a boost for the dollar."

Markets are awaiting the release of U.S. unemployment data for February and consumer price index (CPI) data for March 14, which will affect the Federal Reserve's interest rate policy and its efforts to return inflation to its target.

"There is a reluctance to push the dollar much lower until the market sees the next non-farm payrolls report and CPI," Mr. Manimbo said. "The market just realises that the path back to 2 per cent inflation is likely to be longer and more tortuous."

Investors will get more information on the state of the global economy this week, with February data from the Institute for Supply Management's (ISM) survey of US manufacturing and services to be released on Wednesday and Friday, respectively. Preliminary Eurozone CPI figures for February will be released on Thursday.

The latest data released on Monday showed that the U.S. index of existing home sales rose by the most in two-and-a-half years, but it failed to provide the dollar with the same boost as other recent strong data.

The National Association of Realtors (NAR) said on Monday that the 1 month-on-month index of existing home sales based on signed contracts jumped 8.1% to 82.5, the largest increase since June 2020. Economists interviewed by Reuters predicted a 1.0% rise.

Futures market pricing shows traders now expect the Fed to raise rates to a peak of around 5.4 per cent in July, compared with a peak of 4.9 per cent in early February.

The dollar index fell 0.6% on Monday, but is set to end a four-month monthly decline. Earlier in the session, the dollar index hit its highest since January 6 at 105.36.

The euro rose 0.6 per cent to $1.0607 against the dollar on Monday, while the yen climbed 0.20 per cent to Y136.20 against the greenback, which gave back some of its gains after hitting a more than two-month high of Y136.54 earlier in the session.

The incoming governor of the Bank of Japan, Kazuo Ueda, said on Monday that the benefits of the central bank's current monetary policy outweigh the costs, emphasizing the need to continue to support the economy with ultra-low interest rates.

Sterling rallied after Prime Minister Sunak announced a new deal with the European Union on post-Brexit trade rules, saying it would pave the way for writing a new chapter in London's relationship with the European Union. The pound closed up 1.04% against the dollar on Monday, its biggest one-day gain in nearly six weeks, at $1.2062.

Sunak also said that the British Parliament will vote on the new agreement, and he bet that the reward for reaching better terms with the European Union and the previous divisions within the party over the matter are worth it.

The deal is designed to defuse tensions created by post-Brexit arrangements in 2020 over the governance of the province of Northern Ireland and its open border with European Union member Ireland.

Stefan Koopman, senior market economist at Rabobank, said: "We're not seeing any dramatic market moves right now... but it does take away the prospect of a very nasty tail risk for UK assets. I think bad news is good news when it's avoided."

Monetary strategists said the focus remained on monetary policy, with the latest data showing British businesses unexpectedly returned to growth in February, raising the possibility of further rate hikes.

Money markets see a 97% chance that the Bank of England will raise interest rates by 25 basis points in March, with rates expected to peak at 4.75% in August and currently stand at 4.00%.

They also see a 56% chance of a 50 basis point rate hike in March and a 43% chance of a 75 basis point rate hike.