The US Dollar saw strength as traders adjusted expectations for further interest rate cuts by the Federal Reserve. This followed comments from the Fed Chair suggesting another cut this year is not guaranteed. Market probabilities of a December rate cut diminished. Developments surrounding a potential US-China trade deal introduced further complexity into the market landscape.
- The dollar index held above 99 on Thursday.
- Traders lowered expectations for a December rate cut following hawkish comments from Fed Chair Jerome Powell.
- The Fed delivered a quarter-point rate cut and will end its balance sheet drawdown on December 1.
- Powell stated another rate cut this year was far from a “foregone conclusion”.
- Markets now assign less than a 70% chance of another cut before year-end.
- President Trump announced a deal with President Xi to cut tariffs on China.
- Beijing has yet to comment on the alleged deal.
This suggests the US Dollar may remain relatively stable or even appreciate in the short term if market expectations for further rate cuts continue to decline. The potential trade deal with China introduces some uncertainty, as the market awaits confirmation from Beijing. If the deal materializes as described, it could further support the dollar. However, any negative surprises in economic data or a breakdown in trade negotiations could reverse this trend.