- US data pointed to weak business activity in the services sector.
- Trump gave Steven Miran the vacant Fed position.
- This week, market participants will focus on the crucial US CPI report for more clues on rate cuts.
Currency futures were mixed on Monday after having a strong week amid dollar weakness. The dollar fell last week as Fed rate cut expectations rose due to poor economic data and Trump’s Fed nominations. Meanwhile, market participants kept from making large moves on Monday as they awaited the crucial US consumer inflation report.
Dollar Index (Source: Bloomberg)
Last week, the dollar weakened against most of its peers as traders continued betting on a Fed rate cut in September. Rate cut bets initially rose after a downbeat US employment report. This momentum continued last week as data pointed to weak business activity in the services sector.
Another report on Thursday revealed a jump in jobless claims, further stoking worries about a rapid labor market slowdown. As a result, rate cut bets remained elevated, putting pressure on the dollar.
At the same time, market participants paid attention to Trump’s Fed nomination, which increased speculation about a more dovish Fed. Trump gave Steven Miran the vacant Fed position. According to experts, he will be a dovish member, pushing for rate cuts at the next meetings.
Furthermore, the government is looking at possible candidates to replace Powell when his term ends. Experts believe Trump will pick a dovish Fed Chair.
“It loads the FOMC with people who presumably are a little bit more favorable to lower interest rates,” said Shaun Osborne, chief FX strategist at Scotiabank in Toronto.
“The impression is that the Fed is veering towards cutting interest rates, probably a little bit quicker than markets had expected, certainly prior to last week and perhaps even speculation that the Fed could cut rates a bit more aggressively than we’d been expecting.”
The likelihood of a more dovish Fed will keep weighing on the dollar. Meanwhile, currency futures might benefit.
This week, market participants will focus on the crucial US CPI report for more clues on rate cuts. Forecasts show that the annual figure rose by 2.8%. Meanwhile, the monthly figure might increase by 0.2%. A hotter-than-expected figure will lower rate cut bets and hurt currency futures. On the other hand, if inflation comes in slower than expected, it will support rate cut expectations and boost currency futures.
