The US Dollar Index (DXY), which tracks the US Dollar’s (USD) performance against a basket of six major currencies, is extending its upward trend for a second consecutive session, trading around 99.50 during Monday’s Asian hours.
Despite this, yields on US 2- and 10-year Treasury notes have fallen to 3.60% and 4.14% respectively, as investors moderate their expectations for an immediate Federal Reserve rate cut. The CME FedWatch Tool now indicates that financial markets are assigning a 46% probability of a 25 basis point (bps) rate cut by the Fed at its December meeting, a notable decrease from 67% just a week prior.
This shift in expectations follows recent hawkish comments from Fed officials. On Friday, Kansas City Fed President Jeffery Schmid suggested that monetary policy should “lean against demand growth” and described the current Fed policy as “modestly restrictive,” which he deemed appropriate. Additionally, St. Louis Fed President Alberto Musalem stated on Thursday that interest rates are now closer to neutral than restrictive, highlighting the resilience of the US economy. Musalem emphasized the need for caution, noting limited scope to ease policy without risking excessive accommodation.
Traders are also preparing for a deluge of delayed United States (US) economic data following the government’s reopening, hoping for clearer signals regarding Federal Reserve policy. The highly anticipated September Nonfarm Payrolls report is slated for release on November 20th, and markets are awaiting a revised schedule for other critical economic indicators. However, US National Economic Council Director Kevin Hassett warned that some October data might “never materialize” as various agencies were unable to collect information during the shutdown.
