Dollar up after Fed forecast of just one rate cut in 2024

13 Jun 2024

The Dollar rose on Thursday, coming back from some of Wednesday’s losses as the Federal Reserve forecast just one rate cut in 2024.

However, softer-than-forecast US inflation lessened some of the gains.

Price movement in the currency market was relatively calm on Thursday compared to the day before. Following the release of the consumer price index (CPI) data, the Dollar initially dropped nearly 1%, but by the end of the day, it had incurred a 0.5% loss, marking its largest decline in two weeks.

US consumer prices were unchanged last month from April, going against market forecasts for a 0.1% increase.

“I feel it was a bit overdone, the reaction that CPI. It was almost a relief that it wasn't worse. And that's what sparked such a strong knee-jerk reaction,” said City Index market strategist Fiona Cincotta.

“We saw the selloff in the Dollar pare back as we heard from the Fed and today, as well, it is trending higher. In the cold light of day, perhaps that inflation print maybe wasn't quite as 'cooling' as at first the market read into it,” she added.

Inflation increased at an annual rate of 3.4%, still exceeding the central bank’s 2% target, Reuters news agency reports.

Later on Wednesday, the Federal Reserve decided to keep the funds rate unchanged at 5.25-5.5%. Additionally, policymakers revised down their average projection for interest rate cuts this year from three in March to just one.

Despite the Federal Reserve's projections, markets continued to forecast almost two 25-basis-point rate cuts this year. This expectation played a role in reversing some of the losses experienced by the Dollar.

“Markets are looking at the US Dollar as weakening, with fluctuations in between. That's (mostly) due to Fed rate cuts, which are still priced in for this year,” said Westpac strategist in Auckland, Imre Speizer.

Elsewhere, following six-week lows last week, the Euro was flat at the time of writing at around $1.08, after rising 0.64% on Wednesday.

Meanwhile, the Sterling was also flat at $1.2795, following a 0.5% gain the day before.