The U.S. dollar has shown strength as traders await clarity on President-elect Donald Trump’s proposed policies and the Federal Reserve’s interest rate plans. The dollar’s rise is fueled by speculation that Trump’s policies could boost inflation and impact the Fed’s future rate decisions.
Market Dynamics
After stalling for three sessions, the greenback is back on the rise, with the dollar index nearing a one-year high of 107.07. The dollar has rallied more than 2% since the November 5 U.S. presidential election, driven by bets that Trump’s policies could reignite inflation and temper the Fed’s future rate cuts.
Investor Sentiment
Investors are closely monitoring Trump’s campaign pledges, particularly tariffs, which could have significant implications for global trade. Europe and China are likely to be affected, adding to the market’s cautious stance. The sentiment is further influenced by the possibility that the Fed might not cut rates next month, with market pricing currently setting the odds of a rate cut at just under 54%, down from 82.5% a week ago.
Economic Indicators
A Reuters poll indicates that most economists expect the Fed to cut rates at its December meeting, albeit with shallower cuts in 2025 due to the risk of higher inflation from Trump’s policies. Comments from Fed governors Michelle Bowman and Lisa Cook have provided little clarity, with ongoing concerns about inflation and confidence that price pressures will ease.
Global Impact
The euro has weakened amid concerns about potential trade tariffs and the Russia-Ukraine conflict, further boosting the dollar index. The dollar has also given up some gains against the yen, although the Japanese currency remains under pressure.
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