US Dollar Weakens, Market Awaits Jobless Claims "Test"
The US Dollar Index (DXY) weakened to 98.55 in the Asian session Thursday morning, continuing its decline following the Fed's decision at its December meeting. Selling pressure emerged as the US central bank cut its benchmark interest rate by another 25 basis points to the 3.50%–3.75% range, its third consecutive cut since September. The less hawkish policy tone than expected dampened interest in the dollar and prompted investors to shift to riskier assets.
Fed Chairman Jerome Powell emphasized that the central bank is now in a "fairly comfortable" position to take a wait-and-see approach to economic developments, and assessed that future interest rate hikes are not the base case. Fed officials' latest projections still indicate only one more rate cut next year, the same as the September forecast, but the policy statement signaled that the Fed is likely to hold rates on hold for the near term. For the market, this combination of a rate cut and a pause signal was interpreted as a more dovish package than initially expected, putting downward pressure on the DXY.
In terms of policy probability, market participants now assess a 78% chance of the Fed holding interest rates next month, up from around 70% before the announcement, according to the CME FedWatch Tool. This means that while the rate cut cycle is still open in 2026, in the short term, the market is starting to lock in a "pause, then watch the data" scenario. This has helped keep short-term bond yields depressed and prevented the dollar from strengthening aggressively in the coming sessions.
The next focus is on the release of US Initial Jobless Claims, due Thursday evening. Consensus estimates new jobless claims will rise to around 220,000 from 191,000 previously. If the data comes out weaker than expected (higher claims), pressure on the dollar could persist as it reinforces the narrative of a labor market slowdown. Conversely, if claims are lower than expected and indicate a resilient labor market, this could help limit the DXY's weakness and trigger a short-term upward correction in the US dollar. (asd)
Source: Newsmaker.id
