Dollar Holds Near 7-Week High on Jobs Data

October 8, 2024

Key points:

• Traders have dialled back expectations for deep rate cuts, with a 25-bps reduction in November now an 86% probability.
• The dollar index continues to hover near its seven-week high, driven by stronger US data and a hawkish shift in Fed expectations.

The outlook for US rates has shifted, with traders moving away from predicting larger rate cuts. As of today, markets are no longer fully pricing in a November rate cut, although the probability of a 25 basis point cut stands at 86%.

Additionally, traders are only pricing in 50 basis points of easing by December, down from over 70 basis points just last week.

These adjustments reflect changing expectations about the Federal Reserve’s monetary policy.

Picture: The USDX shows sustained upward momentum, with resistance around 102.425 offering a key level to watch. VT Markets app.

Traders Cautious as Dollar Nears Seven-Week High

The USDX chart shows a clear upward trend, with the price currently stabilising around the 102.145 mark, just below the seven-week high of 102.69 seen last Friday.

With strong data and the possibility of a ‘no landing’ economic scenario, traders are hesitant to aggressively bet on future cuts.

St. Louis Fed President Alberto Musalem’s recent comments underscore the central bank’s cautious stance, indicating that further reductions to the policy rate will likely be gradual.

10-Year Treasury Yield Tops 4% as Traders Await Key Inflation Data

In the bond market, the 10-year US Treasury yield held above 4% during Asian trading hours, reaching this level for the first time in two months.

This rise reflects traders pulling back on expectations for large rate cuts. The next focal point for traders will be this week’s inflation report, along with the release of minutes from the Fed’s September meeting.

These reports could provide further insight into the Fed’s future rate path.

You might be interested: Strong Jobs Data Fuels Fed Dilemma

With key data points ahead, we expect the dollar to maintain its strength in the short term, especially if US inflation prints align with the hawkish shift in market expectations. However, should the inflation data show signs of softening, there could be room for a modest pullback in dollar strength. Conversely, continued strong US economic performance could keep the dollar buoyant.

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