USD/JPY isn’t the only mover today. The dollar has also fallen against other major currencies, with EUR/USD being the most notable. The pair has edged up to 1.1040 after Friday’s rally and looks poised to settle at its highest since December.
The dollar’s struggles come even as traders have backed off on their outlook for more aggressive rate cuts from the Fed, which they had hoped would at least limit the dollar’s weakness, but that has not happened so far.
Traders are currently pricing in just a 28% chance of a 50 bps cut next month, while they are pricing in roughly 95 bps worth of cuts by the end of the year, both of which are somewhat lower than they were prior to last week’s US CPI report.
But the dollar has failed to find much relief amid weakening prospects for Fed rate cuts. Could this be a sign of further dollar weakness for the rest of the year?
The key area to watch in this regard remains the bond market. The 10-year U.S. Treasury yield remains depressed, currently down 1.5 basis points to 3.876%. As long as yields remain low, the dollar itself may struggle to find traction or grip.
There is also the possibility of further pain in the near term if technical indicators are any indication.The upside break in EUR/USD shows little chance of a further rise towards the December highs at 1.1123-39.
