The US dollar continued its upward trajectory from the previous week, driven by robust economic data and hawkish statements from Federal Reserve (Fed) policymakers. Reaching its highest point in nearly three months against major currencies, the surge in Treasury yields fueled expectations that the Fed would adopt a less aggressive approach to interest rate cuts this year.
Simultaneously, the Australian dollar gained ground as the Reserve Bank expressed openness to another rate hike. Globally, investors are reducing their expectations for rate cuts throughout the year. Fed Chair Powell is closely monitoring the labor market's performance, emphasizing robust job growth sustaining wage increases and exerting upward pressure on service prices.
Powell reaffirmed the Fed's more hawkish outlook for 2024, anticipating three 25 basis point cuts this year. Fed funds futures now indicate around 115 basis points of easing for 2024, down from approximately 150 at the year's end. Supported by strong US data, the economic surprise index is at its highest level in about three months.
Following the impactful US jobs report that shook markets and boosted the dollar and bond yields, Monday's data revealed the US service sector's significant expansion in January. This growth, attributed to increased orders and employment, resulted in a three-month high of 55 in the gauge of new orders placed with service providers—a proxy for future demand.
The Senior Loan Officers' Survey, released yesterday, indicated a gradual tightening of loan supply by banks, albeit at a slower pace. With no significant US data scheduled for today, a moderate round of profit-taking on the dollar may occur, considering its recent surge.
