powerballjackpothistory| The Federal Reserve's future monetary policy path affects the trend of the US dollar

Transferred fromPowerballjackpothistoryFinancial Times-China Financial News Network

Last week, the dollar experienced a shock downtrend. The dollar index has fallen to around 104 from 106 at the end of April. Earlier, the dollar rose significantly against most non-US currencies on the back of market expectations of a Fed rate cut. The dollar's decline against other major currencies is still due to a change in market expectations for the Fed's outlook for interest rate cuts. Only this time, there is renewed hope that the Fed will start cutting interest rates in September.

With the decline of the US dollar, Asian currencies such as the Japanese yen and the South Korean won have risen to varying degrees, reversing their earlier decline. However, it is worth noting that the dollar index as a whole has been fluctuating higher since the beginning of the year. At present, there is uncertainty about whether the dollar has formed a downward trend. Overall, the next move for the dollar depends on the Fed's actions. At present, non-US currencies are only given a temporary respite, and once the Fed sends a more "hawkish" signal, the dollar is expected to rise again, when non-US currencies may once again face downward pressure.

The reason for the sharp fall in the dollar last week was the latest US inflation data for April. The latest figures show that the US Consumer Price Index (CPI) rose 3. 3 per cent in April from a year earlier.Powerballjackpothistory.4%. Excluding volatile food and energy, core CPI rose 3% year-on-year.Powerballjackpothistory.6%, the lowest increase since April 2021. Meanwhile, US CPI grew 0.3 per cent month-on-month in April, slightly below expectations of 0.4 per cent, and this is the first time that US CPI growth has slowed in six months.

The decline in CPI in April shows that inflationary pressures in the United States have eased recently, in line with market expectations. At the same time, the reduction of price pressure has also provided further support for the Federal Reserve to start cutting interest rates. In addition, US non-farm payrolls rose by 175000 in April, the smallest increase in six months. The average hourly wage rose 0.2 per cent month-on-month and 3.9 per cent year-on-year, the smallest year-on-year increase in nearly three years. The dollar was weighed down by renewed hopes that the Fed might start cutting interest rates in September on the back of a combination of inflation and the labour market.

After the release of the latest CPI and retail sales data, the dollar fell below the level of 105, returning to the level of 104.20 at one point. Both inflation and cooling retail growth are in line with the Fed's premise of cutting interest rates and Federal Reserve Chairman Colin Powell's statement that it will take longer to keep interest rates high, but the next step is unlikely to be a rate hike. Referring to the CME' Fed Watch tool, the probability that the Fed left interest rates unchanged in June has risen to 97.3%. But the probability of cutting interest rates by 25 basis points in September rose further from 50.5% to 53.8%.PowerballjackpothistoryMost of the market thinks there will be another rate cut in December. In other words, there is a full consensus that the Fed will cut interest rates twice in 2024. " Yang Aozheng, chief Chinese market analyst of FXTM Fortune, believes that.

It can be predicted that the Fed's position on the future monetary policy path adjustment and the market's expected attitude towards the Fed's interest rate cut will become important factors affecting the performance of the dollar in the near future. Fed officials remain relatively cautious about the prospect of a rate cut compared with the market's optimistic expectations of a cut.

While the decline in US CPI data in April is good news, it is not enough to change the attitude of Federal Reserve Governor Michelle Bowman. Michelle Bowman said a few days ago: "although the current monetary policy stance seems to be at a restrictive level, I am still willing to adjust the target range of the federal funds rate at future meetings if the forthcoming data show a stagnation or reversal of inflation." Michelle Bowman said that the significant drop in inflation last year was largely due to the resolution of supply chain problems, but no further progress has been seen this year, so US inflation is expected to remain high. And reiterated that the possibility of raising interest rates would not be ruled out if necessary.

In addition to Michelle Bowman, other Fed officials have expressed caution about cutting interest rates. New York Fed President Williams said that the decline in inflation data is positive news, but these news are not enough to prompt the Fed to cut interest rates in the near future. "at present, there are no indicators showing that there is a reason to change the monetary policy stance, and I do not expect that, nor do I expect confidence in inflation towards the 2 per cent target to increase in the short term." Williams said.

In addition, Barkin, president of the Richmond Fed, expressed a similar view. Barkin believes demand needs to cool further in order for inflation to meet the Fed's target. Mestre, president of the Cleveland Fed, said policymakers needed more data to be sure that inflation was moving towards the Fed's 2 per cent target and recommended keeping interest rates high for longer to achieve that goal.

The Fed's June monetary policy meeting may be an important point in time for the dollar's next performance. The repetition of inflation data adds complexity to the outlook for Fed officials' decisions. Once the Fed sends out more hawk signals at subsequent monetary policy meetings, the dollar is expected to take advantage of the trend.

Yang Aozheng said that interest rate cuts are expected to rise again, the market will usher in personal consumption expenditure inflation data in the next two weeks, and the market will begin to look forward to the June interest rate resolution in the coming weeks. If the market expects the interest rate resolution and the updated bitmap to cut interest rates twice in June, in line with the current market consensus, the dollar index is likely to fall further.