US Dollar Rebounds as Fed Pushes Back Against Rate Cut Expectations

The Dollar Rebounds

The dollar rebounded on Friday after Federal Reserve Bank of New York President John Williams pushed back against the market’s rate cut expectations, though the remained on track for its worst weekly performance in a month.

Market Expectations

The dollar tumbled broadly after updated interest rate projections of Fed officials released on Wednesday showed an expectation for 75 basis points in cuts in 2024.

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Fed’s Stance

Fed Chairman Jerome Powell was also interpreted as striking a more dovish tone at the conclusion of the U.S. central bank’s two day meeting, when he said that the tightening of monetary policy is likely over, with a discussion of cuts coming “into view.”

Williams’ Statement

But Williams said on Friday that “we aren’t really talking about rate cuts right now” at the Fed and it’s “premature” to speculate about them.

Market Reactions

“It strikes some of the similar tones that we heard from Powell earlier this week but it kind of reinforces the fact that the Fed is still very much a data dependent bank and not really endorsing what the market’s pricing in to a degree,” said Bipan Rai, North American head of FX strategy at CIBC Capital Markets in Toronto.

Position Rebalancing

Rai also noted that a large part of the move in the dollar this week has been due to rebalancing positions that were heavily tilted towards the greenback and focused in specific currency pairs, such as against the Japanese yen.

Rate Cut Expectations

Traders are pricing in aggressive expectations for rate cuts, with the first reduction seen likely in March and 141 basis points in cuts seen by December.

Central Bank Statements

The euro and sterling were supported on Thursday by the European Central Bank (ECB) and Bank of England pushing back against rate cuts.

Global Economy

The Bank of Japan is the last of the major central banks to meet this month and the question among traders and investors is whether or not it will signal its intention to ditch its policy of keeping interest rates at rock bottom next week.

Currency Bid Prices

Currency bid prices at 3:00PM (2000 GMT)

• Dollar index 102.5200 101.9700 +0.56% -0.937% +102.6400 +101.8300
• Euro/Dollar $1.0899 $1.0992 -0.83% +1.73% +$1.1004 +$1.0885
• Dollar/Yen 142.1750 141.8450 +0.24% +8.44% +142.4600 +141.4500
• Euro/Yen 154.97 155.98 -0.65% +10.46% +156.4900 +154.4200
• Dollar/Swiss 0.8700 0.8677 +0.28% -5.90% +0.8707 +0.8654