Dollar Steady, Markets Lose "Compass" Due to Shutdown
The dollar index (DXY) moved nearly flat around 97.6 on Tuesday (February 3), after surging for the past two sessions. The dollar's previous strength came from two drivers: the nomination of Kevin Warsh, considered more "hawkish" to lead the Federal Reserve, and surprisingly strong US manufacturing data. As a result, the market postponed the scenario of a premature interest rate cut.
However, many market participants believe the dollar's bigger story hasn't changed: US policy uncertainty remains high, and the interest rate path remains highly data-driven. Currently, the market still expects the Fed to cut rates twice this year, with the points often mentioned as mid-year and late-year—but the level of confidence could change rapidly once new data comes out.
The problem is, "big data" is disrupted. The Bureau of Labor Statistics delayed the release of employment reports (including the Jobs Report/NFP) due to the partial shutdown, and the release of JOLTS (Job Openings) was also delayed. This has left the market without a short-term compass—making the dollar more sensitive to political headlines and comments from central bank officials.
In Washington, the Republican leadership in the House of Representatives is scheduled to vote on a funding package to end the shutdown, after it passed the Senate. This development has also affected sentiment, as a prolonged shutdown could disrupt public services and the scheduled release of economic data.
Meanwhile, the US dollar weakened most noticeably against the Australian dollar after the Reserve Bank of Australia raised interest rates by 25 bps—giving the AUD a yield boost, causing the USD to lose ground in the pair.
Source: Newsmaker.id
