(Bloomberg) — Traders are pushing the dollar toward a second straight week of gains as they anticipate a slowing pace of interest rate cuts by the U.S. Federal Reserve.
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The Bloomberg Dollar Spot Index rose 0.5% this week, even as some other central banks consider further monetary easing to support regional economies, as the Fed becomes more cautious after solid U.S. economic data. As expectations for the rise in prices rose, the rate of increase through October was extended to 1.7%. .
Money markets are reflecting traders' expectations that U.S. officials will cut borrowing costs by more than a quarter of a percentage point in November.
Yusuke Miyairi, a foreign exchange strategist at Nomura International, said, “The reason for the dollar's strength is probably that the market discussion has shifted from the scale of the interest rate cut in November to whether it should be paused or not.''
The dollar's momentum stalled over the weekend, but the Bloomberg index remains near its highest since mid-August. A group of speculative market participants, including hedge funds and asset managers, had bet on a weaker dollar by about $13.6 billion as of Oct. 1, up from $14.8 billion the previous week, according to data from the Commodity Futures Trading Commission. It was reduced to
Traders bet on aggressive rate cuts at the Fed's two remaining Fed policy meetings in 2024 after recent data showed resilience in the US labor market in September and measured progress in inflation. support for the dollar has increased as the dollar has started to shrink.
Geopolitical risks from the Middle East conflict are also increasing demand for safe-haven currencies such as the dollar and Swiss franc.
The path from here is less certain. With the upcoming U.S. election just weeks away, the premium paid to hedge the U.S. currency's strength against a basket of countries over the next month has risen to near its highest level since July.
JPMorgan Chase strategists, including Patrick Locke, said in a note this week that while the dollar has not yet shown a significant risk premium related to the U.S. election, given polling indicators and tariff policy risks, We are too complacent with the status quo.”
–With assistance from Carter Johnson.
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