USD: Market sticks to two Fed cuts view – BNY

💡 DMK Insight

Interest rate expectations are diverging from the Fed’s hawkish signals, and here’s why that matters: With the market pricing in two rate cuts this year despite the Fed’s recent stance, traders need to be cautious. The sticky PCE inflation suggests that the Fed might not pivot as quickly as the market anticipates. If inflation remains elevated, the dollar could strengthen, impacting forex pairs like EUR/USD and GBP/USD. Traders should watch for any shifts in Fed commentary or economic data that could realign market expectations with reality. The real story is that if the Fed holds rates steady or even raises them, we could see a significant dollar rally, which would put pressure on risk assets and commodities. Keep an eye on the upcoming economic indicators, especially inflation reports, as they could serve as catalysts for volatility. A break above key resistance levels for the dollar could signal a shift in sentiment, so monitoring the DXY index will be crucial in the coming weeks.