The U.S. dollar: how will the Fed’s key rate decision affect it?

June 11, 2024 at 09:34AM
[Key takeaways]


At its May meeting, the Federal Reserve maintained the target range for
the federal funds rate at 5.25%-5.50%, marking the sixth consecutive time it
has remained unchanged.


The likelihood of a Fed rate cut in September has increased
significantly, rising from 50% to 70% during the first week of June due to
indicators of a cooling labour market and downward revisions in labour costs.


The U.S. Dollar Index (DXY) is in a downtrend, currently testing the
104.00 level, with the potential to fall further if dovish statements from Fed
officials materialise.

On June 11–12, the Federal Open Market Committee
(FOMC) of the U.S. Federal Reserve will meet to decide on key interest rates in
the U.S. economy and issue the latest FOMC Economic Projections. The Fed is
expected to leave rates unchanged.

At its May meeting, the Federal Reserve kept the
target range for the federal funds rate unchanged at 5.25%-5.50% for the sixth
consecutive time. This decision was due to ongoing inflationary pressures and a
tight labour market, indicating a halt in progress toward achieving the 2%
inflation target this year.

The number of job openings decreased by 296,000 from
the previous month to 8.059 million in April 2024, marking the lowest level
since February 2021 and falling short of the market consensus of 8.34 million.
Additionally, private businesses in the U.S. added 152,000 workers to their
payrolls in May 2024, the lowest in four months and significantly below the
forecast of 175,000 and the downwardly revised 188,000 in April. Initial
jobless claims also increased more than expected last week, and labour costs in
Q1 were revised downward. Given these indicators of a cooling labour market and
the downward revisions in labour costs, the likelihood of a Fed rate cut this
autumn has increased significantly. During the first week of June, the
probability of a rate cut in September rose from 50% to 70%, as investors
anticipated a more accommodative stance from the Federal Reserve in response to
the softer economic data. However, the U.S. nonfarm payroll (NFP) report
released on Friday was stronger than expected, and the chances for a rate
decrease dropped to 56% (according to CME FedWatch tool).

‘The U.S. labour market is still strong but shows
signs of cooling, as do economic indicators and the pace of inflation. While
the market widely expects the Fed to keep the rate unchanged, there is a high
likelihood of hearing dovish statements from Fed officials, which could put
pressure on the U.S. dollar,’ said Kar Yong Ang, a financial market analyst at
Octa.

The U.S. Dollar Index (DXY) has been in a downtrend
since 16 April. The key level is 104.00; a break of this level could send the
price down to 103.80 and 103.50.

About Octa

Octa is an international broker that
has been providing online trading services worldwide since 2011. It offers
commission-free access to financial markets and various services already
utilised by clients from 180 countries with more than 42 million trading accounts.
They provide free educational webinars, articles, and analytical tools that
help clients reach their investment goals.

The company is
involved in a comprehensive network of charitable and humanitarian initiatives,
including the improvement of educational infrastructure and short-notice relief
projects supporting local communities.

HUBFX

Octa has also won
over 70 awards since its foundation, including the ‘Best Educational Broker
2023’ award from Global Forex Awards and the ‘Best Global Broker Asia 2022’
award from International Business Magazine.

This article was written by FL Contributors at www.forexlive.com.

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