The U.S. dollar surged to multi-year highs following Friday’s stronger-than-expected labor data, which reinforced expectations of a hawkish Federal Reserve.
Market participants are now betting on a rate cut later this year, further enhancing the greenback’s appeal.
Moreover, the upcoming inauguration of Trump could fuel volatility in the market and could influence investor sentiment.
This week, traders could focus on speeches from Federal Reserve officials and inflation data. Persistent inflationary pressures could support a hawkish Federal Reserve stance and bolster the dollar, while easing inflation may weigh on the greenback.
Meanwhile, the German full-year GDP growth data, due on Wednesday, could influence the European Central Bank’s policy trajectory expectations. Stronger-than-expected economic data could raise speculation that the ECB could potentially scale back its rate-cut pace, benefiting the euro.
In the bond market, U.S. Treasury yields rose, with the 10-year note yield hovering close to 4.8%. In the weeks ahead, volatility is anticipated to rise, potentially influenced by key events, including Trump’s inauguration and the Federal Reserve’s forthcoming rate decision. Persistent inflation risks and the Federal Reserve’s hawkish outlook may provide ongoing support for both U.S. yields and the dollar.
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