US Dollar supported as markets cool down Fed’s rate cut cycle prospects

LONDON (October 22) The US Dollar (USD) slightly retraces on Tuesday following a small sprint higher on Monday that drove the US Dollar Index (DXY), which gauges Greenback’s value against six major currencies, to a fresh 11-week high after US equities retreated from their all-time highs. The US Treasury bonds are starting to sell off as well as it appears that markets are starting to reprice their interest rate cut expectations, with rising probabilities that the Federal Reserve (Fed) only set to cut once more this year before going into a wait-and-see mode. 

On the US economic front, a very light calendar is ahead for markets to digest on Tuesday. One takeaway, though, comes from the Fed speakers as there is a clear dispersion in opinions within the Federal Open Market Committee (FOMC), as Atlanta Fed President Raphael Bostic pleaded for no rate cuts anymore this year while San Francisco Fed President Mary Daly commented on Monday that the Fed needs to go ahead with its rate cutting cycle and ease further. Market participants are intrigued to see what Philadelphia Fed President Patrick Harker thinks about the matter this Tuesday around 14:00 GMT. 

Daily digest market movers: Fed is becoming dispersed

• At 14:00 GMT, Federal Reserve Bank of Philadelphia President Patrick Harker delivers opening remarks at the Eight Annual Fintech Conference Hosted by the Federal Reserve Bank of Philadelphia.
• While Harker will deliver his speech, the Richmond Fed Manufacturing Index for October will be released at 14:00 GMT. Analysts expect the number to remain in contraction at -18, a touch better than the -21 in September.
• Asian equities are sluggish again, with Japan’s main indices having closed over -1% lower. European equities are flat to marginally higher, while US equity futures are marginally in the red. 
• The CME Fedwatch Tool is still backing a small 25 basis point (bps) rate cut with an 87.0% probability against a 13.0% chance of no rate cut for the upcoming Fed meeting on November 7.  
• The US 10-year benchmark rate trades at 4.20% and rallied substantially on Monday while bonds were selling off. Note that when bond prices fall, the inverted yield increases. 

FXStreet