Dollar powered up in European trade on Thursday against a basket of major rivals, extending gains for the second straight day and almost hitting multi-week highs.
The strong gains came following the bullish Federal Reserve’s policy meeting this week, which hurt the odds of an interest rate cut in March.
Now investors await a batch of important US data later today on unemployment claims and manufacturing.
The Index
The dollar index rose 0.3% to 103.81, with a session-low at 103.44, after closing up 0.1% on Wednesday, the first profit in four days, resuming gains and approaching a six-week high at 103.82.
The Fed
The Federal Reserve held interest rates flat as expected this week at below 5.5%, already the highest since 2001.
The Fed said the US economy is performing better than expected, which convinces the Fed to slow down when it comes to changing its monetary policy, especially as achieving the 2% inflation target takes more time.
The Fed said it’s not appropriate to cut down the target range of interest rates this year until inflation is sustainably moving towards 2%.
The Fed said that US economic outlook remains uncertain, with the FOMC remaining highly attentive to inflation risks.
Powell
Fed Chair Jerome Powell said on Wednesday that FOMC members are committed to bringing inflation back to the 2% target, noting the strength of the economy, which would allow for a rate cut “sometime”.
Powell said the strength of the US economy surprised analysts more than once due to strong consumer demand, with the labor sector heading for a better balance overall.
Powell said that what the Fed needs is total confidence that inflation is heading towards 2% in the medium term.
When asked about an interest rate cut in March, he said it’s unlikely, however everying relies on data.
US Rates
Following the meeting, the odds for a 0.25% Fed interest rate cut in March tumbled from 52% to 35%, down from over 80% just a month ago.
Traders now expect a total of 140 basis points of interest rate cuts in the US throughout 2024, down from 160 basis points in previous forecasts.
Important Data
Now investors await a batch of important US data later today, with unemployment claims expected down slightly to 213 thousand in the week ending January 27 from 214 thousand.
US ISM manufacturing PMI is expected down to 47.2 in January from 47.4 in December.
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