Dollar Strengthens, ISM-ADP Data Cuts Chances of Fed Rate Cut
The US dollar strengthened on Thursday (March 5) after stronger-than-expected US economic data prompted markets to further reduce the odds of a Federal Reserve interest rate cut. The dollar index (DXY) rose 0.3% to 99.004, extending support from repricing policy expectations.
The dollar's strength was driven by a surge in service sector activity. The ISM Services PMI rose to 56.1 in February from 53.8 in January, signaling faster expansion. At the same time, the ADP private payrolls report showed an increase of 63,000 jobs, also exceeding market expectations.
This series of data comes amid rising energy prices due to the Middle East conflict, which has increased market sensitivity to inflation risks. The combination of strong domestic demand and energy pressures has made investors more cautious about aggressive easing scenarios, as higher inflation could limit the Fed's room to cut interest rates.
According to LSEG data, the market has now only fully priced in one interest rate cut this year, in September. This shift in expectations has become a major channel for the dollar's strengthening, as persistently higher interest rates tend to widen the US yield differential against other major currencies.
Looking ahead, market focus is on the next data releases that could determine the direction of interest rate repricing, particularly employment and inflation data, amidst energy volatility that continues to have the potential to quickly change the policy narrative.
Source: Newsmaker.id
