Ahead of this week’s Federal Reserve policy meeting, investors evaluated U.S. economic data, which helped to keep the dollar stable. At the same time, growing geopolitical concerns in the Middle East moderated risk sentiment.
The dollar index, which compares the value of the US dollar to six competitors, edged up 0.01% to 103.55 on Monday. This was expected to be a 2% gain in January as traders reduced their bets on significant and early cuts in US interest rates.
The Fed’s dovish stance in December and its projection of 75 basis points of rate reduction in 2024 startled the markets, causing them to price in an early and aggressive easing program that may see a drop as early as March.
However, since then, traders have had to modify their expectations due to robust economic data and reluctance from central bankers. According to the CME FedWatch tool, markets are presently pricing in a 48% likelihood of a rate decrease in March, down from an 86% chance at the end of December.
“The markets recognize that the tightening cycle is over. However, they swung hard, pricing in aggressive easing by most of the G10 central banks,” Bannockburn Forex chief market strategist Marc Chandler said. He predicted that correcting the trends that started last month will continue in the upcoming weeks.
According to data released on Friday, prices in the United States increased somewhat in December, maintaining the annual inflation rate below 3% for a third consecutive month and supporting predictions that rate cuts will likely occur this year.
This week, investors will focus on the Federal Reserve’s two-day policy meeting, which begins on Tuesday. It is largely anticipated that the central bank will maintain current interest rates, which will focus all of the attention on Fed Chair Jerome Powell’s remarks.
“This Wednesday’s meeting should be straightforward… There is little reason for the FOMC to make meaningful changes in the statement,” stated Paul Mackel, HSBC’s global head of FX research. “The focus will be on Chair Powell’s thinking about potential changes to the Fed’s balance sheet and whether the pace of QT (quantitative tightening) should slow, and if so, when?
Investors will be keeping an eye on a plethora of economic data in addition to the Fed, such as the U.S. payrolls report, which will aid in determining the strength of the labor market.
Ahead of the Bank of England meeting later this week, the euro was down 0.05% at $1.0847, while sterling was last up 0.04% at $1.2703. On Monday, the value of the Japanese yen increased by 0.01% to 148.14 per dollar. The Asian currency is headed for its worst monthly performance since June 2022, losing around 5% compared to the US dollar in January.
Investors, in the meantime, are cautious due to elevated geopolitical risks following the deaths of three US military personnel in an aerial drone strike on US forces in northern Jordan, close to the Syrian border. The incident was the first fatal attack on American personnel since the Israel-Hamas conflict broke out in October, and U.S. President Joe Biden accused militants backed by Iran for it.
A brief boost to the safe-haven yen might come from the global unrest, according to experts. In other places, the New Zealand dollar increased by 0.18% to $0.610, while the Australian dollar increased by 0.21% to $0.659. Bitcoin just increased in value by 0.18% to $42,062.00.
- Published By Team Genuine Reporter