The trade-weighted index of the dollar dropped by 0.07% to 103.19, remaining steady against the euro at $1.0898.
The dollar’s performance this year has been uncertain as investors grapple with predicting when the Federal Reserve will initiate rate cuts. Recent data indicating the resilience of U.S. economic activity tempered expectations of rate cuts in March, which were previously near 80% in early January.
San Francisco Federal Reserve Bank President Mary Daly stated on Friday that the U.S. economy and monetary policy are currently in a “good place,” dismissing the notion of imminent rate cuts.
Market expectations for rate cuts in March have decreased to below 50%, with traders betting on cuts starting in May, according to CME Group data. Chris Weston from Pepperstone noted the USD’s correlation with the likelihood of a March Fed cut.
NatWest Markets analysts suggested that while there’s room for the U.S. dollar to correct, the near-term Fed pricing appears more balanced. Rising Treasury yields in recent days reflect central bank officials resisting swift rate cuts.
This week brings focus on the ECB and Turkey’s policy meetings, a busy earnings season, and disruptions in the Red Sea impacting global trade. ECB policymakers acknowledge an eventual reduction in borrowing costs, but market analysts expect fewer cuts than predicted.
U.S. stocks, particularly the S&P 500, have surged, confirming a bull market since October 2022. Investor optimism about Fed rate cuts has contributed significantly to these gains.
