Yahoo Finance The U.S. Dollar: How Will the Fed’s Key Rate Decision Affect It?
The Fed is expected to leave rates unchanged.
At its May meeting, the Federal Reserve kept the target range for the federal funds rate unchanged at 5.25%-5.50% for the sixth consecutive time. This decision was due to ongoing inflationary pressures and a tight labour market, indicating a halt in progress toward achieving the 2% inflation target this year.
The number of job openings decreased by 296,000 from the previous month to 8.059 million in April 2024, marking the lowest level since February 2021 and falling short of the market consensus of 8.34 million. Additionally, private businesses in the U.S. added 152,000 workers to their payrolls in May 2024, the lowest in four months and significantly below the forecast of 175,000 and the downwardly revised 188,000 in April. Initial jobless claims also increased more than expected last week, and labour costs in Q1 were revised downward.
Given these indicators of a cooling labour market and the downward revisions in labour costs, the likelihood of a Fed rate cut this autumn has increased significantly. During the first week of June, the probability of a rate cut in September rose from 50% to 70%, as investors anticipated a more accommodative stance from the Federal Reserve in response to the softer economic data. However, the U.S. nonfarm payroll (NFP) report released on Friday was stronger than expected, and the chances for a rate decrease dropped to 56% (according to CME FedWatch tool).
‘The U.S. labour market is still strong but shows signs of cooling, as do economic indicators and the pace of inflation. While the market widely expects the Fed to keep the rate unchanged, there is a high likelihood of hearing dovish statements from Fed officials, which could put pressure on the U.S. dollar,’ said Kar Yong Ang, a financial market analyst at Octa.
The U.S. Dollar Index (DXY) has been in a downtrend since 16 April. The key level is 104.00; a break of this level could send the price down to 103.80 and 103.50.
About Octa
Octa is an international broker that has been providing online trading services worldwide since 2011.
This article was originally posted on FX Empire
