Traders have adjusted their expectations for US interest rate cuts, with a November reduction now less certain and bond yields climbing. As market sentiment shifts, investors are keeping a close eye on key economic data to get a clearer idea of the Federal Reserve’s next moves.
Market sentiment regarding US interest rates has shifted, with traders pulling back from anticipating significant rate cuts. As of today, markets are no longer fully expecting a rate cut in November, though the likelihood of a 25-basis-point reduction stands at 86%.
Additionally, traders are now pricing in just 50 basis points of easing by December, a notable decrease from over 70 basis points last week.
This adjustment reflects evolving expectations regarding the Federal Reserve’s monetary policy direction.
The US Dollar Index (USDX) shows a clear upward trajectory, with the price currently consolidating around the 102.145 level, slightly below the seven-week high of 102.69, which was reached last Friday.
Robust economic data, coupled with the possibility of a ‘no landing’ scenario for the economy, has made traders cautious about placing aggressive bets on future rate cuts.
Recent comments from St. Louis Federal Reserve President Alberto Musalem reinforce the view that any further reductions to the policy rate will likely be gradual.
In the bond market, the 10-year US Treasury yield remained above 4% during Asian trading, hitting this level for the first time in two months.
This rise signals traders tempering expectations for large-scale rate cuts. The next key events for traders will be this week’s inflation report and the release of the Federal Reserve’s September meeting minutes.
These updates could provide additional insights into the future trajectory of US interest rates.
With important data releases on the horizon, we expect the dollar to stay strong in the short term, particularly if US inflation figures align with the more hawkish tone seen in recent market expectations.
However, if inflation data suggests a slowdown, there may be room for a slight easing in dollar strength. On the other hand, continued robust economic performance in the US could sustain the dollar’s momentum.
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