The dollar is lower today on a resurgent expectation of aggressive rate cuts by the Fed next year. The tug of war between 50 basis-points in cuts and 100 basis-points in cuts in 2024 has defined trading since the FOMC’s rate policy announcement last Wednesday when the Fed unexpectedly pivoted to a dovish stance. Fed members now project rates to reach 4.6% by year-end 2024 from the current implied 5.30%, the equivalent of nearly three rate cuts.
Fed Funds futures prices currently imply a high probability of 25 basis-point cuts at each of the FOMC’s May, June, July, and September 2024 meetings.
The Dollar index is -0.24% today and only -1.17% for all of 2023, somewhat masking volatile DXY swings between 99.578 and 107.348 during the year.
The dollar is lower today against all G10 currencies apart from a 1.09% gain vs. JPY. The dollar has dropped against all majors since the FOMC’s rate decision (again except for a gain vs. JPY). Notable USD declines: -1.25% vs. AUD, -1.18% vs. CAD, -0.93% vs. GBP, -0.84% vs. EUR, and -0.64% vs. MXN.
The U.S. Treasury yield curve has flattened over the last week with the 10-year yield seesawing between 4.202% and 3.884%, currently at 3.922%.
Canadian CPI reported today was higher than expected: MoM +0.1% vs. -0.1% est., and YoY +3.1% vs. +2.9% est.
