The dollar index climbed above 97.5 on Tuesday, extending its earlier-session rebound as investors reassessed the Federal Reserve’s interest rate outlook relative to other major central banks. Although January’s subdued inflation reading reinforced expectations that the Fed will cut rates more than once this year, the still-strong macroeconomic backdrop has bolstered the case made by more hawkish FOMC members who have recently rotated into voting positions.
Their stance has been underpinned by strong labor market data, including a sharp increase in non-farm payrolls in January and a solid rise in employment reported by ADP. Looking ahead, GDP figures due later this week are expected to confirm another quarter of economic expansion, further supporting the dollar.
The greenback also benefited from weakness in G10 currencies. Softer wage growth in the UK weighed on the pound, while declines in measures of underlying inflation pressured the Canadian dollar.
