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Analyst: The U.S. index’s correction has expanded, but it should strengthen again in March

2024-02-23

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Analysts warned on Thursday (February 22) that the dollar's correction has expanded, but it should strengthen again in March.

The U.S. dollar continued to weaken despite the Federal Reserve confirming overnight that it was cautious about cutting interest rates too quickly, suggesting that the "hawkish" repricing is largely over.

The minutes of the Federal Reserve's policy meeting on February 1 confirmed to investors that a March interest rate cut was no longer possible. The money market showed a 90% chance of a 25 basis point interest rate cut at the June FOMC meeting. After that, the GBP/USD exchange rate consolidated above 1.26, compared with That's down from 100% a day ago.

"The dollar has generally been lagging the climb in U.S. interest rates since early last week. The overnight FOMC minutes confirmed that the Fed is unlikely to cut interest rates anytime soon," said Alvin T. Tan, strategist at Royal Bank of Canada.

The dollar failed to rise following the release of the Fed minutes, suggesting the hawkish repricing that has dominated foreign exchange markets and underpinned dollar strength in 2024 may be on hold.

According to Pound Sterling Live's forecast for the week ahead, GBP/USD is expected to strengthen this week, judging that the US dollar's rise in 2024 looks "long-lived" and is ready to fade. This expectation has been realized as scheduled, and the market currently believes that the Fed's interest rate hike in 2024 will be much lower than originally expected.

Quek Ser Leang, market strategist at UOB in Singapore, said: "GBP/USD is likely to fluctuate between 1.2600 and 1.2660, with slightly stronger upward momentum; GBP may edge higher towards the main resistance level of 1.2690."

Frances Cheung, interest rates strategist at OCBC Bank, said: "The dollar fell overnight, but the trend remains weak. As expected, the release of the FOMC minutes is not that important for foreign exchange as hawkish inflation returns after The pricing report has been released. There is nothing new,”

Richard Franulovich, foreign exchange strategist at Westpac Bank, said that major currencies are enjoying a breather and the U.S. dollar index is expected to end its five-week winning streak. However, he warned that "dollar strength appears likely to return at next month's FOMC meeting."

Richard Franulovich explained: "Although the FOMC meeting minutes downplayed the rate cut, there is still a soft undercurrent in DXY. But regardless, most of DXY's 3.5% gain this year has been displayed through a handful of important data and event meetings. "

One example is the sharp rise in the dollar following the release of January inflation data, which showed broadly firm prices and warned that a fall to the 2.0% inflation target was not a sure thing.

However, Richard Franulovich pointed out that in addition to these big data and event-driven trends, the U.S. dollar has been "clearly consolidating, showing a stepped upward trend." "This suggests that DXY should retain most of its gains in 2024, with major event risk in the coming weeks likely to push DXY higher again," he explained.

At 08:38 Beijing time, the U.S. dollar index was currently at 103.98.

The above information is provided by special analysts and is for reference only. CM Trade does not guarantee the accuracy, timeliness and completeness of the information content, so you should not place too much reliance on the information provided. CM Trade is not a company that provides financial advice, and only provides services of the nature of execution of orders. Readers are advised to seek relevant investment advice on their own. Please see our full disclaimer.

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Analyst: The U.S. index’s correction has expanded, but it should strengthen again in March

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