By Maria Agustina Pati, Financial Markets Strategist Consultant at Exness
“The U.S. dollar started the week trading with low volatility as investors await key U.S. inflation data later this week. Inflation is projected to rise modestly to 2.7%, but a significant overshoot could alter expectations regarding Federal Reserve rate cuts at the upcoming meeting. Markets are strongly expecting a 25 basis point interest rate cut next week. A higher-than-expected inflation reading could also temper the outlook for future rate reductions, providing additional support for the greenback.
Robust U.S. economic data, including stronger-than-anticipated NFP numbers and improved consumer sentiment, continue to stabilize the dollar. Meanwhile, the U.S. 10-year note yield has fallen below the 4.2% mark, weighing on the currency.
While the US dollar has been retracing for the last few weeks, it remains on an uptrend since September. The currency and US yields could find support in any stronger-than-expected data in addition to the cautious comments of the Federal Reserve members and expectations of inflationary policies from the upcoming US administration.”