Dollar Heads for Best Week Since October, Rate Cuts Fade
The US dollar is on track for its best week since October, as market participants begin to scale back expectations for a Fed interest rate cut. At the same time, geopolitical risks—particularly escalating US-Iran tensions—are driving demand for safe haven assets and supporting the greenback.
The Bloomberg Dollar Spot Index rose about 0.9% this week, its biggest weekly gain since October. The boost comes from lingering inflation concerns and recent solid US economic data, making the prospect of a rate cut this year appear more uncertain.
Several analysts believe the market is shifting toward a more serious US-Iran engagement. Rising oil prices are also making it harder to view the euro and yen as pure safe havens, allowing the dollar to fill that space when global sentiment is uneasy.
This pressure is evident in the movements of major currencies: the yen is down about 1.8% this week and hovering near 155.50 per dollar, while the euro is down about 1% at $1.1750. The options market also indicated a change in tone, with short-term positions becoming the most bullish for the dollar since November.
The shift in interest rate expectations strengthened after the FOMC meeting minutes showed Fed officials were apparently quite wary of cutting rates too quickly. Some even suggested rates might need to rise again if inflation remains stubborn.
Looking ahead, the market focus shifts from employment back to inflation, with the focus on the PCE release and fourth-quarter GDP data. If US data comes back stronger than expected, previously dollar-biased market participants could be forced to close positions, potentially adding fuel to the greenback's rally.
5 core underlying
The dollar is headed for its best week since October as expectations for a Fed rate cut begin to wane.
The Bloomberg Dollar Spot Index is up about 0.9% this week, supported by US data and inflation concerns.
US-Iran geopolitical risks are adding to the dollar's safe-haven appeal.
The yen weakened near 155.50, and the euro fell to around $1.1750.
The market is looking to the PCE and GDP as the next indicators for the USD and interest rate expectations.
Source: newsmaker.id
