Investing.com — Friday’s rise posted a weekly gain as stronger jobs report bets on a Federal Reserve rate cut in September have cooled, but it’s unlikely to mark a major reversal of the dollar’s bumpy decline , unless the Fed indicates that this is the case. There will probably be no cuts this year.
“To trigger a larger reversal of the USD’s recent weakening trend, the May US CPI report and/or the FOMC meeting should cast serious doubt on whether the Fed will raise rates at all this year decrease,” MUFG said in a Friday note.
Ahead of the Fed’s two-day meeting next week, bets on an aggressive Fed pause got a boost after “today’s strong US NFP report, both for employment growth and wages,” MUFG added.
Friday’s report came against the backdrop of labor market updates this week, including data showing job openings fell to a three-year low.
According to the report from Investing.com, the odds of the September interest rate fell to 45% on Friday from 55% a day earlier.
Earlier this year, the Fed announced three cuts for the year, but persistent inflation and a strong labor market suggest the economy doesn’t need any help from multiple rate cuts.
“We expect the Fed’s updated projections to show an upward revision to this year’s inflation outlook, but not enough to prevent the Fed from continuing to signal its intention to make multiple rate cuts in the second half of this year to implement,” said MUFG.
The upcoming May CPI inflation data, due Wednesday, could also play a role in the Fed’s thinking and the dollar’s next move, Morgan Stanley said.
“We expect the USD to fall if the May CPI surprises negatively, leading the committee to leave its March projections for the core PCE and Fed funds rate unchanged in the September-September quarter,” Morgan Stanley said.
