The US Dollar Index (USDX) has maintained its upward trajectory, recording a recent high of 106.969. The steady climb reflects a shift in market sentiment, driven by both economic expectations and political factors.
Despite the Federal Reserve’s indication of a potential December rate cut, traders are focusing on an anticipated inflationary boost from incoming President Trump’s policy platform. This has led to reduced expectations for aggressive rate cuts, buoying the dollar against its peers.
Picture: USDX trades near a high of 106.831, as seen on the VT Markets app.
Traders pared back Fed cut expectations following Fed Chair Jerome Powell’s comments.
The trend data at 0.30% shows positive sentiment, as market participants re-evaluate the US economic outlook in light of Powell’s emphasis on economic resilience and sticky inflation.
Fed Policy Expectations and Market Reactions
Following Powell’s remarks on the strength of the US economy, traders are now projecting a softer approach to rate cuts. CME FedWatch data shows a drop in the probability of a 25 basis point cut in December, down from 82.5% to 48.3%.
The reduced likelihood of aggressive cuts supports the dollar as higher Treasury yields attract global inflows.
Strategic Considerations for Traders
For traders monitoring currencies against the USD, it is essential to consider both technical indicators and broader market sentiment. The USDX’s current momentum, supported by the MACD and moving averages, suggests continued strength in the greenback.
"We think that the election of Trump and the likely imposition of tariffs really is a game changer for Fed policy in 2025," Nomura chief economist David Seif says. "We still expect the Fed to cut in December … and we expect a cut in March, and we think that's going to be it." pic.twitter.com/kpTx2vuj3f
However, traders should remain cautious of potential Fed announcements or shifts in economic data that could impact dollar strength.
The USDX’s climb, combined with Powell’s cautious stance, presents a scenario where dollar bulls are likely to dominate in the short term. However, as geopolitical factors evolve and Trump’s policies come under scrutiny, further shifts in sentiment may influence the dollar’s path, impacting major pairs like EUR/USD.
