Home Business News Dollar Index Outlook: Do the current data raise doubts about interest rate cuts for 2024?

Dollar Index Outlook: Do the current data raise doubts about interest rate cuts for 2024?

18th Apr 24 8:48 am

The U.S. Dollar Index (DXY) is trading near 106.30 points during Wednesday’s session, continuing to benefit from stronger-than-expected retail sales data released last Monday.

The weak housing data released on Tuesday did not prompt any significant reaction from the U.S. dollar.

I believe the U.S. economy is currently experiencing strong growth and ongoing inflation.

While the Federal Reserve’s statements and signals are mixed, it is not eager to raise interest rates but welcomes monetary tightening through maintaining interest rates at their current levels and increasing yields.

Following the strong inflation report and March labor data, expectations for easing in June and July have diminished, leading to a sharp rise in the U.S. dollar against other assets.

Yesterday’s data showed a 4.3% decline in building permits for March, a significant 14.7% drop in housing starts, and a 0.4% increase in industrial production compared to the previous month, in line with expectations.

This fundamentally suggests that delaying the easing cycle and maintaining high interest rates may be appropriate.

In my view, following the recent influx of strong U.S. data, market investors are currently adjusting their expectations regarding monetary easing. The market expects the initial interest rate cut to be implemented in September with a 70% probability of a second cut in December. Investors’ expectations for a rate cut in June have decreased to 25% from 60% last week, and I anticipate a revaluation of the number of cuts from three to two or even one by 2024.

Furthermore, I see the U.S. Dollar Index (DXY) pausing its rise at present with the start of the U.S. session on Wednesday, which may lead to some downward corrective pressure on the U.S. dollar in the very near term. However, I believe that in the medium to long term, the U.S. dollar remains strong, as evidenced by the price differentials since last week, which have favored the U.S. dollar against other currencies. Additionally, escalating geopolitical tensions, especially in the Middle East, serve as support for the dollar as a haven.

The speeches of three Federal Reserve speakers, including Jerome Powell, did not impact market sentiment yesterday. There were no changes in the wording regarding expectations of interest rate cuts or the outlook from the Federal Reserve Chairman, keeping the dollar stable during today’s trading. The markets are now digesting all events and data to assess and price in overall conditions, possibly pushing the U.S. Dollar Index to retest its highs for the year.

Overall, the economic data strongly reaffirm the strength of the economy and labor market and the heightened risk of a broader conflict in the Middle East. This sentiment was echoed by the new Federal Reserve Chairman John Williams, who stated that recent consumer price index numbers were not a turning point for the Fed to reconsider its stance.

This opinion was fundamental before the speech by U.S. Federal Reserve Chairman Jerome Powell on Tuesday, which did not provide any new insights into future interest rates, leaving markets in a state of uncertainty and doubt, leading to a phase of cautious stability in the near term.

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