The Dollar Index Slips as Consensus Grows for a 25 BPS Hike
The US dollar index (DXY) slipped to 104.46 on Monday as investors awaited the new monthly jobs report and Jerome Powell’s testimony to Congress. Both events will likely influence the US central bank’s upcoming interest rate hike decision.
76% Chance for a Third 25 BPS Hike in 2023
The dollar index is red on Monday as investors braced for Federal Reserve Chair Jerome Powell’s testimony ahead of the upcoming jobs data later this week that could influence the US central bank’s next interest rate hike. The dollar index, a gauge of the US dollar’s strength against a basket of currencies, was slightly down at 104.46.
Following massive interest rate hikes in 2022, the Fed has adopted a somewhat more dovish approach in its monetary policy, delivering 25 basis points (bps) increases at its last two meetings. However, a string of recent economic reports has raised concerns among investors that the US central bank might have to get back to 50 bps hikes to rein in inflation.
At the moment, futures suggest a 76% chance the central bank will increase rates by 25 bps at its upcoming meeting on March 22 and a 24% chance of a larger 50 bps hike. Last year, the Fed delivered four consecutive 50 bps hikes to tame the 4-decade high inflation of 9.1%. Since then, inflation in the US has declined to 6.4%, though still, a far cry from the Fed’s target of 2% as certain sources of inflation remain difficult to tame.
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Investors Brace for New Jobs Data on Friday
The brief drop in DXY, its first weekly loss since January, comes as investors nervously await the February jobs report due on Friday. In addition, the Fed boss Jerome Powell is expected to deliver his testimony to US Congress on Tuesday and Wednesday.
“Of all this week’s events, it will be payrolls that will be the most important one.” Are we going to have a continuation of the February outlook of higher for longer or are the markets going to come back to January payrolls is going to be a bit of an outlier and maybe the economy is slowing.”– Rabobank currency strategist Jane Foley said.
Earlier this year, the January jobs report showed robust job growth and resilient wage inflation, giving investors no reason to think the Fed will stop hiking interest rates soon.
Do you think a surprising labor report is a strong enough reason for the Fed to switch back to 50 bps hikes? Let us know in the comments below.