9th February 2024: The US Dollar Index (DXY) continues its losses for the second consecutive session. The price remains in negative territory, although it has slightly reduced some of its losses during Wednesday’s session, trading around 104.10 points with a clear stability since the morning.
This comes after Federal Reserve Chair Jerome Powell tempered expectations of interest rate cuts, emphasizing the importance of monitoring inflation and the necessity of approaching the 2% target to initiate monetary tightening. However, the US dollar is weakened due to prevailing uncertainties in the US bond market, impacting its performance despite the cautious stance taken by the Fed on monetary policy. The yields on 2-year and 10-year US Treasury bonds are currently 4.39% and 4.02%, respectively.
In my view, the dollar index experienced an uptick on Monday in response to strong economic data for January. The Services Purchasing Managers’ Index (ISM) exceeded expectations, reaching 53.4 compared to the forecasted 52.0. There was also an improvement in the employment index in the ISM services sector, rising to 50.5 from the previous reading of 43.8.
I believe the statements on Tuesday by Loretta Mester, the president of the Federal Reserve Bank of Cleveland, suggesting that the central bank was considering interest rate cuts later in the year but cautioning against hasty decisions, will support the strength of the dollar in the medium and long term. Especially as expectations are conflicting regarding the continuation of the inflation decline.
Today, Federal Reserve members Adriana de Kogler and Thomas I. Barkin are scheduled to make statements. Therefore, the markets are in a state of anticipation, seeking more information about the Federal Reserve’s stance on future monetary policy.
I see positive expectations for the US dollar, with the focus not only on the timing of Federal Reserve interest rate cuts but also on the extent of these cuts compared to other countries over the next two years. The expectations involve a reduction in easing by the Federal Reserve, which favors a strong US dollar.