US Dollar Index Rises Amid Fed Signals

The US dollar index (DXY), which gauges the value of the dollar against six major currencies, has climbed for the second consecutive day, trading around 97.80 during Asian market hours on Thursday.

The dollar’s strength is attributed to hawkish signals from the Federal Reserve and the growing belief that U.S. interest rate cuts will be tempered. Federal Reserve President Lisa Cook remarked that she wouldn’t back further rate cuts without clear signs that inflation is subsiding. She expressed more weight on concerns about stagnant disinflation rather than issues in the job market.

Moreover, the appointment of Kevin Warsh as Fed chair is seen as leaning towards a modest balance sheet and a more cautious stance on interest rate reductions. However, former President Donald Trump stated he wouldn’t have nominated Warsh had he been in favor of raising interest rates. Trump also mentioned that there’s “not much” uncertainty about the Fed lowering rates given the current high levels of U.S. interest rates, adding that “we’re a rich country again.” It’s a bit of a mixed message, really.

On the data front, ADP employment figures indicated that private sector payrolls rose by just 22,000 jobs in January, falling short of market expectations for a 48,000 increase and lower than the previous revised estimate of 37,000 jobs. This disappointing figure was particularly poignant since the release of official government data was postponed. Meanwhile, the Institute for Supply Management (ISM) Services PMI remained unchanged from January, flat at 53.8. Still, this was above analysts’ expectations of 53.5, so there’s that.