The United States dollar index or it is also known as DXY slumped in the 101.80s range at the start of trading in the European session on Tuesday (24/January).
Market trading tends to be quiet as Asian financial centers remain closed in celebration of the Lunar New Year. However, this USF trend reversals are becoming more obvious right now.
The US dollar rate has continued to weaken since the opening of trading at the beginning of the year until now. More and more analysts are changing their projections for USD.
It was especially for 2023 from bullish to bearish. That prediction was following the release of some U.S. economic data last week that highlighted the magnitude of the threat of a recession.
Market Projections are Pessimistic
Market participants currently expect the Fed to only raise interest rates two more times, by 25 basis points each, in the first half of the year. They also expect the Fed's interest rate to peak at 5% by June.
It was followed by two rate cuts of 25 basis points each before the end of the year. The overall market projections are a bit more pessimistic than the official projections from Fed officials.
The US is no longer become the cleanest clothes for economic laundry globally. This was said by Ray Attrill, head of FX strategy at National Australia Bank.
This is integral to our bearish view of the United States dollar, that America will not be the leader of global growth. Attrill expects the U.S. dollar index to fall to 100.00 by the end of March.
EURO Rose in Light of Hawkish Rhetoric
Meanwhile, EUR/USD has the potential to lift further to 1.10 in the same time span. The euro rose in prestige earlier this year in light of hawkish rhetoric by ECB officials.
ECB President Christine Lagarde on Monday reiterated her intention to raise interest rates aggressively to control inflation. Markets now expect the ECB to raise interest rates by another 50 basis points in its February policy meeting.
The decision is likely to be followed by several hikes until the deposit rate peaks at a minimum of 3.3% as of July. President Lagarde is among the hawkish, so the analysts are comfortable with their forecast.
That was for a 50 basis point rise at the next two (ECB) meetings. This overview was said by Joseph Capurso, a strategist from CBA, who also expects EUR/USD to potentially test 1.1033 this week.
France and Germany Have the Different Situation
Hopes for that ECB rate hike could also backfire. The euro risks a hit if Lagarde fails to realise his rhetoric. Moreover, the Eurozone economic data over the past few months cannot be said to be brilliant.
The preliminary report from the Purchasing Managers' Index (PMI) survey for January 2023, which has just been released, shows a mixed situation. Germany's Manufacturing PMI score continues to wallow.
That was below the contraction threshold, while the services sector shows a recovery from 49.2 to 50.4. France was in the opposite situation; its Manufacturing PMI score recovered.
However, its services sector continues to fall into recession. These situations show that market is still not that stable right now.
Gold is Stronger
The strengthening of US Treasury bond yields also lifted the Dollar Index. As a result, the price of gold reaped little pressure. The latest update on the condition of US inflation is back in the spotlight.
The S&P Global survey shows that the upward impulse in U.S. inflation is still higher than the previous spring. That is, hot inflation has not really recovered.
It is even though the Fed has tightened monetary aggressively. Nevertheless, Ryan McKay analyst at TD Securities said that gold prices will still be quite strong in the short term.
Market expectations of a more dovish Federal reserve supported gold buying interest and were little affected by the survey. In next week's monetary policy announcement, 96% of traders expect the Fed to raise interest rates by only 25 basis points.
