The US Dollar, which had soared to a two-year high, is now showing signs of consolidation as it hovers around steady levels. This follows the Federal Reserve’s hawkish signal regarding the number of projected interest-rate cuts for 2025.
The Federal Open Market Committee (FOMC) members’ concerns about inflation persisting throughout 2025, along with the potential “Trump-effect,” have led to a reduction in the expected rate cuts. The market had anticipated four rate cuts, but the Fed’s indication of only two has sent ripples through the financial landscape.
The US Dollar Index (DXY), currently trading at around 108.00, is facing some downward pressure due to profit-taking. After a significant upward move on Wednesday in the wake of the Fed’s interest-rate decision – a 25-basis point cut that took the policy rate to the 4.50%-4.75% range – the market is now adjusting.
On the economic data front, the third reading of the US Gross Domestic Product for the third quarter showed an annualized growth of 3.1%, surpassing estimates. However, the Philadelphia Fed Manufacturing Survey for December took a nosedive, falling deeper into contraction. Weekly Jobless Claims also came in at 220,000, lower than the previous week and the estimate.
As the year winds down towards the Christmas lull, a government shutdown looms in the US, with both the House of Representatives and the Senate scrambling to pass a stopgap bill, while President-elect Donald Trump has expressed opposition.
In the equity markets, European stocks are down over 1% on Thursday, while US Futures seem unfazed by the Fed’s hawkish message and are poised for a positive open. The CME FedWatch Tool shows a 91.4% probability of a stable policy rate at the first Fed meeting of 2025. The US 10-year benchmark rate has reached a fresh seven-month high at 4.54%.
From a technical analysis perspective, the DXY, after reaching a new two-year high of 108.28 post the Fed rate decision and dot plot release, is now subject to profit-taking. It is expected to potentially correct further, with support levels eyed at 107.35 and 106.52. On the upside, key resistance levels are 109.29 and 110.00.
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