This article is a rewritten and expanded version of the original piece titled “US Dollar Forecast: Fed Rate Cut Odds Surge to 94% on Jobless Claims Rise; GBP/USD and EUR/USD” by Andrew Moran, published on FX Empire. The content below offers an in-depth analysis of recent developments in the US dollar’s performance, with a focus on Federal Reserve policy expectations, economic data, and major currency pairs.
US Dollar Outlook: Rate Cut Expectations Surge Following Weak Jobless Data
The US dollar showed renewed signs of weakness as rising jobless claims fueled speculation that the Federal Reserve may begin cutting interest rates sooner than previously anticipated. A notable increase in unemployment figures has led investors and analysts to revise their rate expectations, reflecting a heightened probability that the central bank could take dovish action as early as September 2024.
Fed Rate Cut Odds Climb Dramatically
According to the latest data, the odds of a Federal Reserve interest rate cut at the September policy meeting surged to 94%. This followed the U.S. Department of Labor’s report indicating that weekly jobless claims reached their highest level in ten months. The unexpected rise in claims pointed to a potential cooling in the labor market, renewing concerns about slowing economic momentum in the United States.
The rise in rate cut expectations has been driven by:
– An increase of 13,000 in initial jobless claims, bringing the total to 242,000 for the week ending in early June
– The highest number of new claims since August 2023
– Market consensus had projected claims to remain steady at 229,000, making the latest report notably worse than expected
This deviation from forecasts has triggered a re-evaluation of the Fed’s future moves. The underlying message is that weakening labor conditions could eventually justify a looser monetary stance to prevent a broader economic slowdown.
Market Reactions to Jobless Data
The financial markets reacted immediately to the jobless data. Treasury yields declined while equities reversed losses, indicating that traders were recalibrating their expectations for interest rate policy. Meanwhile, the value of the US dollar fell relative to most major currencies, as anticipated rate cuts would reduce the yield advantage of dollar-denominated assets.
Current Federal Reserve officials, including Fed Chair Jerome Powell, continue to stress a data-driven approach. However, as inflation cools and jobless claims rise, the balance of risks seems to be shifting toward easing financial conditions.
Key Fed Officials Speak Cautiously
While rate cut odds have soared in derivative markets, Federal Reserve policymakers remain non-committal. Several officials have continued to signal caution, warning that inflation remains above the central bank’s 2% target. Others have suggested that sustained progress in disinflation and weaker labor data could justify policy adjustments later in the year.
Notable statements from Fed members include:
– Atlanta Fed President Raphael Bostic reaffirmed the importance of economic data, stating future rate decisions would be based on “observable weakness, particularly in the labor markets”
– New York Fed President John Williams said it is too soon to declare any pivot in policy direction
– Cleveland Fed President Loretta Mester indicated that while inflation had moderated in recent months, more evidence is needed before easing
Despite the generally hawkish tone of these remarks, markets are increasingly focused on the objective realities presented by macroeconomic releases.
Dollar Index Weakens Amid Shifting Expectations
The US Dollar Index (DXY), which tracks the greenback against six major currencies, encountered a sharp downward trend following the jobless claims report. Opening the trading session near the 104.65 mark, the index extended losses toward the 104.00 support level before stabilizing marginally.
This weaker performance underscores a broader sentiment shift where risk appetite strengthens as the expectations for a Fed rate cut intensify. Investors are becoming more inclined to rotate out of the dollar and into higher-yielding or growth-sensitive assets.
Key Influences on the Dollar Index:
– Rising jobless claims signaling a softer economic outlook
– Federal
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