US dollar update
US dollar Summary
Today, the U.S. dollar index remains around the price area of 102 with weekly losses of approximately 1.70%. This decline was influenced by expectations of interest rate reductions by the Federal Reserve in the coming year. Earlier in the week, the Fed maintained its interest rates for the third straight meeting and indicated a total of 75 basis points in rate reductions for 2024, which is a quicker pace than what was forecasted in September. Federal Reserve Chair Powell maintained a dovish stance in his press conference, mentioning that talks about lowering borrowing costs are becoming more imminent, spurred by a faster-than-anticipated decrease in inflation. According to the FedWatch tool, there is a 67% probability of a Fed rate cut in March. The robust U.S. retail sales and a drop in weekly jobless claims did not significantly shift expectations for a rate cut.
Market participants are focusing on the upcoming U.S. Purchasing Managers Index (PMI) data for deeper understanding. If the PMI readings across various sectors rebound to above 50, it would indicate that the US economy is performing better than Europe, where all PMI indicators have shown contraction for several months.
Market Views & Opinions
ING in today’s report regarding the EUR/USD says “We are tempted to say that EUR/USD does not go too much further above 1.10 now”, concluding that “Our bias is that EUR/USD hangs around this 1.10 level into year-end. Yet December is seasonally a weak month for the dollar and trends have a habit of extending in thin year-end markets.”
Commerzbank’s report today says about the Fed and U.S. inflation: “Overall, we now expect six rate cuts of 25 bp each in 2024 (previously: four rate cuts) and an unchanged further two in early 2025. The fed funds target range would then fall by a total of 200 bp to 3.25%-3.50%. We expect stronger rate cuts than the Fed, as we have a less favorable growth picture, with a slight recession in spring/summer 2024. We are revising our inflation forecast for 2024 slightly from 3.0% to 2.8% following the relatively favorable data of recent weeks.”
The information in this report is of a general nature only. It is not a piece of personal financial advice. It does not take into account your objectives, financial situation, and personal needs.
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