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The U.S. dollar remains close to a three-month high on Tuesday, supported by increased Treasury yields and a growing belief that the Federal Reserve will not aggressively reduce interest rates this year.
The dollar index, gauging the U.S. currency against six counterparts, stands at 104.42, reaching 104.60 on Monday, its highest since Nov. 14. It has gained 3% this year, rebounding from a 2% drop in 2023.
Recent data revealed an uptick in U.S. services sector growth in January, marked by rising new orders and rebounding employment. This positive economic start, coupled with last week's impressive jobs report, has dispelled hopes for early and substantial interest rate cuts by the Fed. Fed Chair Jerome Powell and fellow policymakers have also rejected this notion.
Traders have been reducing their expectations of rate cuts since the year began, with the CME FedWatch tool now showing only a 15% chance of a cut in March, down from 69% at the start of the year. Expectations for total cuts in 2024 have shifted from 150 basis points in January to the current 115 basis points.
Christopher Wong, a currency strategist at OCBC in Singapore, notes that further scaling back is possible but limited due to the entrenched disinflation trend in the U.S. and easing labor market tightness.
Attention in Asia is on the Reserve Bank of Australia's policy decision, widely expected to keep rates unchanged. Investors have postponed bets on the first rate cut from June to August, aligning with economists' expectations of steady rates into the second half of the year.
The Australian dollar hovers around $0.64835, its lowest since Nov. 17, awaiting the RBA decision. In other currencies, the euro shows a marginal increase at $1.0743, while the pound, despite upbeat economic data, remains near a seven-week low at $1.254.
The Japanese yen strengthened to 148.56 per dollar, a slight increase from its two-month low of 148.90 on Monday. Japan's real wages fell for the 21st consecutive month, though at a slower pace, and household spending declined for a tenth straight month, reflecting the impact of inflation outpacing wage recovery on consumer spending.
Paraphrasing text from "Reuters" all rights reserved by the original author.
