The USD bullish rally continued to rage after Powell bluntly said that the Fed may not be in a hurry to cut rates, citing a strong labour market and a “remarkably strong” economy
By :Matt Simpson, Market Analyst
No sooner had I written today’s headline that “the USD rally was showing early signs of fatigue”, Jerome Powell hit the wires to force a quick edit. Citing a solid labour market and “remarkably good” recent economic performance, Powell bluntly said that “the economy is not sending signals that the US central bank needs to be in a hurry to lower interest rates”.
Not that it should need translating, but it diminishes odds of more rate cuts next year in the current climate. Especially when we’re all waiting to see just how inflationary Trump’s second term may be. The Fed funds futures curve was lower across the board, particularly in the second half of 2025 (lower prices imply higher yields).
Fed funds futures are still favouring a December cut with a 62.4% probability, but the potential for it to land in January instead also sits at 55.5%. The next cut could arrive in July according to the curve, but it is not particularly confident with just a 39% probability.
Click the website link below to get our Guide to central banks and interest rates in Q4 2024.
https://www.forex.com/en-us/market-outlooks-2024/Q4-central-banks-outlook/
The USD rally could have a lot further to go
If we step back to admire the view, it is easier to appreciate that the USD rally could have a lot further to go. While the USD index is currently amid its best two-month performance in over a year, its year-on-year performance is just 5%—which is much lower than previous rate of change (12) peaks of approximately 9% to 23%. Trough to peak performance has reached between 24.1% to 32% over the prior three rallies, whereas the current rally from its lows is a modest 7.1%. Sure, there will be opportunities for pullbacks along the way, but if previous macro moves are to be repeated, then we could be looking at a USD index breaking to new highs above 112.
However, something to also factor in if the USD does continue to strengthen is whether Trump wants a strong dollar. While his policies may warrant a stronger dollar, he was vocal about not liking it during his first term.
- USD/JPY reached a 4-month high (and reached my 126.20 target) ahead of Japan’s GDP figures released later today
- USD/CHF hit a 4-month high and tagged my 0.89 target
- USD/CAD closed above 1.40 for the first time since May 2020
- EUR/USD tagged the 1.05 handle for the first time since October 2023 (which for now is holding as support)
- AUD/USD saw its lowest daily close since April and is now less than 50-pips from the 64c handle
- GBP/USD fell to a 4-month low and closed beneath the 1.27 handle
Click the website link below to get our exclusive Guide to EUR/USD trading in Q4 2024.
https://www.forex.com/en-us/market-outlooks-2024/Q4-eur-usd-outlook/
Events in focus (AEDT):
- 08:30 – NZ business PMI
- 10:50 – JP GDP, capex, private consumption
- 12:30 – CN house prices
- 13:00 – CN fixed asset investment, industrial production, retail sales, unemployment, NBS press conference
- 15:30 – JP industrial production, capacity utilisation
- 18:00 – UK GQP (Q3), industrial production, index of services, manufacturing production, trade balance
- 21:00 – EU economic forecasts
- 22:30 – ECB McCaul speaks
- 00:30 – US core retail sales
- 01:15 – US industrial production, manufacturing production, business inventories
- 02:00 – ECB Lane speaks
View the full economic calendar
– Written by Matt Simpson
Follow Matt on Twitter @cLeverEdge
The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.