Although the conviction persists among operators that rates will not rise, the probabilities of a first cut in March have been reduced to less than 25%, from more than 33% a day earlieraccording to CME Group’s FedWatch tool.
The dollar in the world strengthens due to data that clouds the Fed’s expectations
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The market of the dollar remains stable this Thursday, trying to recover from two days characterized by considerable volatility, given that operators interpreted the economic indicators as a clear sign that the Federal Reserve adopts a more cautious stance before considering cuts in interest rates.
The index of the dollar, which evaluates the performance of the US currency against a set of six currencies, remains stable at 104.33 points. The previous day saw an increase of 0.31%, after a significant drop of 1.51%, marking its largest single-day decline in a span of a year.
Meanwhile, the euro shows an increase of around 0.1%, trading at 1.0857 dollars, like the yen which stands at 151.16 units per dollar. Against the pound sterling, the dollar remains stable at $1.24085.
The factors that support to the dollar are the positive data on retail sales, exceeding expectations, and additional signs of a cooling in inflation. These elements feed the idea of a possible “soft landing” of the economy, giving the Federal Reserve more time before considering reductions in interest rates.
Dollar: what data the market observes
Although the conviction persists among operators that rates will not rise, the probabilities of a first cut in March have been reduced to less than 25%, from more than 33% a day earlieraccording to CME Group’s FedWatch tool.
Projections based on the rate implied by futures markets indicate approximately 70 basis point cuts by 2024compared to previous expectations of 80 basis points of easing just a week ago.
James Kniveton, senior currency trader at Convera, says: “Despite the decline in inflation, the economy remains robust, which could even give the Fed room to raise rates if it so chooses.” However, notes that there currently does not appear to be a desire among Fed officials to proceed with an increase in rates.
Deutsche Bank strategist Jim Reid shares a study by his bank’s economists, which highlights thatn the last two years there have been seven occasions when markets have anticipated an abrupt change by the Fed towards rate cuts. In the six situations above, those expectations were completely dispelled.
Source: Ambito
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