- The US dollar rose to 104.42, driven by higher Treasury yields and the Fed's expected dovish approach on interest rate cuts.
- Traders are adjusting their expectations, with only a 15% chance of a rate cut in March, down from 69% at the start of the year.
- Asian currencies show little movement, while the Australian dollar and the euro remain steady despite the strength of the dollar.
The US dollar, as of Tuesday, maintained its strength, hovering near its highest level in three months. This indicates the currency's flexibility amid changing market expectations. The dollar index reached 104.42, with a peak at 104.60 on Monday, marking its highest point since November 14. This performance indicates a 3% increase for the year, a notable recovery from a 2% decline in 2023.
Market Dynamics: Shift in interest rate cut expectations in March
Since the beginning of the year, market dynamics have changed dramatically. Traders reduced their expectations of significant interest rate cuts by the Federal Reserve. According to the CME FedWatch tool, the probability of a rate cut in March has dropped significantly to 15% from 69% expected at the beginning of the year. Furthermore, the year-over-year interest rate cut forecast was revised to 115 basis points. This was down from the 150 basis points initially expected in early January.
Global currencies overview: mixed responses among major currencies
The Australian dollar showed resilience, maintaining stability at $0.64835, despite approaching its lowest level since November 17. This comes as markets await a decisive decision. In contrast, the euro and the British pound saw slight increases. The euro rose 0.02% to $1.0743, and the British pound rose 0.06% to $1.254, both remaining close to recent lows and reflecting a cautious approach among traders.
On Tuesday, the strength of the US dollar, which was close to a three-month high, led to minimal movement among most Asian currencies. The Malaysian ringgit fell by 0.3%, approaching its lowest levels in three months as of Monday, while the Indonesian rupiah saw a slight decline of 0.2%.
This analysis highlights the current state of the currency markets, focusing on the resilience of the US dollar and the cautious attitude among traders regarding other major currencies. The shift in expectations for interest rate cuts by the Federal Reserve underscores the evolving market sentiment as traders adjust their strategies based on the latest economic indicators and forecasts.
