The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, edged lower on Monday, retreating from a three-day rally to trade near the 98.50–98.60 region during Asian trading hours. Market participants are turning cautious ahead of Tuesday’s release of the US annualized Gross Domestic Product (GDP) data for the third quarter, a key indicator that could shape expectations for the Federal Reserve’s next policy move.
Despite the near-term pullback, the US Dollar may find underlying support from the Federal Reserve’s cautious policy stance. Cleveland Fed President Beth Hammack said on Sunday that monetary policy is well-positioned for a pause, allowing officials to assess the economic impact of the cumulative 75 basis points (bps) of rate cuts during the first quarter, according to Bloomberg.
Interest rate expectations remain skewed toward a prolonged pause. The CME FedWatch tool shows a 79.0% probability that the Fed will keep interest rates unchanged at its January meeting, up from 75.6% a week earlier. Meanwhile, the likelihood of a 25-bps rate cut has declined to 21.0%, highlighting fading expectations for further near-term easing.
Sentiment indicators offered mixed signals. The University of Michigan’s final reading showed that the Consumer Sentiment Index was revised lower to 52.9 in December from 53.3 previously. The Consumer Expectations Index also slipped to 54.6 from 55.0, while one-year inflation expectations were revised higher to 4.2%, compared with 4.1% in both the preliminary estimate and the prior month.
Political developments remain in focus as well. US President Donald Trump said last week that the next Chair of the Federal Reserve would favor substantially lower interest rates. Fed Governor Christopher Waller, who is reportedly under consideration for the role, echoed a dovish tone, noting that policymakers can afford to ease policy gradually, stating that there is no urgency to rush toward lower rates as inflation remains elevated.
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