Dollar Breaks 97, Markets Increasingly Confident the Fed Will Be "Dovish"
The US Dollar Index (DXY) fell to around 97.90 in the Asian session on Friday, after two days of strengthening, and briefly broke below 98.00. This weakening occurred as the market assessed the latest employment data as signaling a cooling, thus reinvigorating expectations for the Fed's policy easing.
US employment data was the main trigger. Initial Jobless Claims rose to 231,000 (week ending January 31), higher than the 212,000 forecast and the previous 209,000. Meanwhile, the ADP report showed only 22,000 private sector jobs added in January, well below the 48,000 expected and the previous 37,000.
Consequently, the market is starting to lock in the scenario of two interest rate cuts this year, with the first cut expected in June, and potentially another in September. According to CME FedWatch, the probability of the Fed holding interest rates at its March meeting is around 77.3%, confirming that easing is not imminent.
Despite weakening, the DXY remains near a two-week high, as investors assess the Fed's rate cut pace may be slower than some market participants expect. Fed Governor Lisa Cook emphasized that she does not support further cuts without stronger evidence that inflation has truly subsided, suggesting the Fed's focus remains on "recalcitrant" inflation risks.
The market is also closely monitoring the impact of Kevin Warsh's nomination as the next Fed chair. Warsh is known for favoring a smaller Fed balance sheet and a less aggressive approach to interest rate cuts—which has led the market to reconsider how quickly a "dovish mode" could occur, while also alleviating some concerns about the central bank's independence. (Asd)
Source: Newsmaker.id
