Dollar Steady Near Recent Highs

22 Oct 2024 , 09:57 AM

A close race in the next US election had investors on edge as the US dollar held onto a two-and-a-half-month high on Tuesday due to predictions the Federal Reserve will adopt a gradual approach to interest rate decreases.

The yen, euro, and sterling have been under pressure due to the strength of the dollar, which has been reinforced by rising Treasury yields. This trend has been developing over the past few weeks as data has shown that the U.S. economy is still doing well, leading traders to reduce their bets on significant and swift rate cuts from the Fed.

On Monday, four Federal Reserve officials stated that they were in favour of additional rate reduction, but they didn’t seem to agree on how quickly or how far they thought any cuts should go.

The opposing viewpoints offered a preview of what could be discussed at the Fed’s next policy meeting, which is scheduled for November 6-7.

According to the CME FedWatch tool, investors anticipated an identical possibility of a larger 50 basis point (bps) decrease one month ago, but markets now pricing in an 89% chance of the Fed decreasing rates by 25 bps next month, compared to a 50% chance one month earlier.

Since the Fed began its cycle of rate cuts with a 50 basis point decrease in September, traders are predicting a total 41 basis point lowering for the remainder of the year.

For feedback and suggestions, write to us at [e-mail]