It appears that the DXY Index, representing the US Dollar, is facing downward pressure despite positive economic data such as strong Nonfarm Payrolls (NFP) and higher-than-expected Average Hourly Earnings for December. The primary factor influencing the market sentiment seems to be the disappointing ISM Services PMI for the same month.
The Federal Reserve’s dovish stance, as communicated in the last 2023 meeting, also contributes to the bearish outlook. The Fed’s comfort with cooling inflation and projections of no rate hikes until 2024, with potential rate cuts, signal a negative climate for the US Dollar. Market predictions suggest a possible rate cut in March, followed by another in May, reflecting concerns that lower interest rates could lead to capital flowing to higher yield markets.
Despite strong labor market figures, the ISM figures have prompted investors to anticipate a less aggressive Fed. The likelihood of rate cuts in March and May of 2024 is now gaining traction in mar