Investing.com – Friday’s jump brought a weekly win as stronger jobs reports lowered bets on the Federal Reserve’s September rate cut, but it’s unlikely to mark a major reversal in the dollar’s bumpy downward road unless the Fed signals it won’t. . There is unlikely to be any reduction this year.
“To trigger a broader reversal of the recent US dollar weakening trend, the May US CPI report and/or FOMC meeting should cast serious doubt on whether the Fed will cut rates at all this year,” MUFG said in a note on Friday.
Ahead of next week’s two-day Fed meeting, bets on a hawkish Fed pause received an additional boost following “today’s strong US NFP report on both employment growth and wages,” MUFG added.
Friday’s report comes amid news on the job market this week, including data showing job openings fell to a three-year low.
The likelihood of a September rate fell to 45% on Friday from 55% a day earlier, according to Investing.com.
Earlier this year, the Fed signaled three rate cuts this year, but persistent inflation and a strong labor market suggest the economy doesn’t need any help in the form of multiple rate cuts.
“We expect the Fed’s updated forecasts to show an upward revision to its inflation forecast for this year, but this will not be enough to prevent the Fed from continuing to signal that they plan to make multiple rate cuts in the second half of this year,” MUFG said .
The upcoming May CPI inflation data, due Wednesday, could also play a role in the Fed’s thinking and the dollar’s next move, Morgan Stanley said.
“We expect the US dollar to fall if the consumer price index falls in May, leading the committee to leave its March forecasts for core PCE and the federal funds rate unchanged in the June SEP,” Morgan Stanley said.