In the forex market, the US dollar is going on with its gradual recovery amid fading expectations for aggressive rate cuts by the Federal Reserve. Besides, the clock is ticking down to the US presidential election.
The US dollar is showing steady, albeit modest, recovery driven by two significant factors: the risk that the Federal Reserve might pause its rate cuts following the November meeting, and the potential victory of Donald Trump in the presidential election, which, according to some pro-Democratic business media, could entail chaos in the national economy.
The US Treasury market has reacted to these expectations with bond sell-offs since early October, causing yields to rise. Throughout the month, the yield on the 10-year Treasury bond benchmark has grown from 3.73% to 4.22%, and this uptrend is still going on today. Strong economic data from the US, including retail sales figures, along with the increasing likelihood of Trump's victory, his tariff pledges, and tax policies, are driving yields higher. Market participants will closely monitor speeches by several Fed policymakers this week to gain further insight into the regulator's plans for the federal funds rate. Against this backdrop, market sentiment remains cautious, but expectations of a 0.25% rate cut at each of the remaining meetings this year remain strong.
The ICE Dollar Index is currently hovering just below 104.00, the highest level since early August, reflecting the rising Treasury yields and the favorable economic outlook for the US economy, along with the increasing likelihood of a victory for the 45th president.
Meanwhile, fresh comments from Federal Reserve members indicate that there is growing optimism about the US economy, leading to a revision of the need for sharp rate cuts. For example, Minneapolis Fed President Neel Kashkari stated that the long-term trajectory of interest rates could be higher than previously estimated, suggesting he advocates for a pause in rate cuts. His colleague, Dallas Fed President Lorie Logan, said she supports rate cuts but urged caution, signaling her indecision and suggesting she might support a pause in rate cuts. All of this, combined with the potential return of Donald Trump to power, remains a key factor supporting the US dollar.
What to expect on Forex today?
I believe the overall trend of gradual dollar appreciation will continue this week.
Daily forecast
EUR/USD The EUR/USD pair is trading above 1.0810. It may partially recover, but it is likely to resume its decline, first towards 1.0780, and then to 1.0725 after breaking through the 1.0810 support level.
GBP/USD The GBP/USD pair bounced off the 1.2975 support level. It may recover to 1.3030, after which it is more likely to fall to 1.2900, breaking below the 1.2975 mark.
