U.S. dollar climbed to 2-month highs as the Fed eased early rate cut hopes

DXY-U.S. dollar index -which measures the value of the U.S. dollar against a basket of six major peers including the Euro, Yen, and Pound Sterling-hit a fresh 2-month high of 103.82 mark on Thursday morning as March Federal Reserve rate cut bets eased.

The U.S. dollar rose across the forex board after the end of the 2-day FOMC January’s monetary policy meeting, climbing as high as $1.0780 against the Euro, $1.2640 to the pound sterling, and ¥147.50 against the Japanese Yen.

DXY-U.S. dollar index, 4-hour chart

Forex investors turned bullish on the greenback after Federal Reserve Chair Jerome Powell pushed back on the idea of a first U.S. interest rate cut as soon as March, as the resilient U.S. economy and solid economic data are forcing the policymakers to wait longer before starting cutting interest rates.

The Federal Reserve maintained its benchmark interest rate on Wednesday in a range of 5.25%-5.50%, the highest since 2001, and cautioned it won't begin lowering interest rates until it sees further progress on inflation returning to its 2% target.

Federal Reserve Funds rates

In the press conference following the end of the FOMC meeting, Powell said that a rate cut in March was “not the base case”, adding that he doesn’t think it’s likely the FOMC committee will reach a level of confidence by the time of the March meeting” to ease policy, “but that’s to be seen.” (Source: www.cnbc.com) 

Yet, he did say that interest rate cuts would likely begin at some point this year as CPI and Core CPI inflation continue to fall and job growth slows.

According to the CME Group, traders are now (following the Fed's announcement on Wednesday) pricing in a 38% probability the Fed will cut rates in March, down from 59% ahead of the Fed decision, while has fallen from 89% a month ago. Investors now predict a roughly 90% chance that at least one cut will happen in May instead or later in June. (Source: www.cmegroup.com)