Dollar steady in cautious start to busy data, Fed week
By Ankur Banerjee
SINGAPORE (Reuters) — The dollar started the week on a steady footing as investors took stock of U.S. economic data ahead of the Federal Reserve policy meeting this week, while escalating geopolitical tensions in the Middle East kept risk sentiment in check.
The dollar index, which measures the U.S. currency against six rivals, inched 0.01% higher to 103.55 on Monday, set for a 2% gain in January as traders temper expectations of early and deep U.S. interest rate cuts.
The Fed in December surprised markets by taking a dovish tone and projecting 75 basis points of rate cuts in 2024, resulting in markets pricing in early and steep easing, with a cut expected as early as March.
But since then, strong economic data and pushback from central bankers have prompted traders to adjust expectations. Markets are currently pricing in a 48% chance of a rate cut in March, the CME FedWatch tool showed, compared with an 86% chance at the end of December.
«The markets recognise that tightening cycle is over. However, they swung hard, pricing in aggressive easing by most of the G10 central banks,» said Marc Chandler, chief market strategist, at Bannockburn Forex.
The coming weeks will likely continue the correction of the trends that began last month, Chandler said.
Data on Friday showed U.S. prices rose moderately in December, keeping the annual increase in inflation below 3% for a third straight month and reinforcing expectations that rate cuts are likely to come this year.
Investor attention this week will squarely be on the Federal Reserve's two-day policy meeting which starts on Tuesday, with the central bank widely expected to stand pat on rates, leaving the spotlight all on Fed Chair Jerome Powell and his
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