The USD/JPY pair isn’t the only one moving so far today. The USD has also fallen against other major currencies, with EUR/USD also in particular focus. The pair is trading at 1.1040 after Friday’s gains and looks set to settle at its highest level since December last year.
What’s unique about the dollar’s struggle is that it comes despite traders backing away from pricing in more aggressive rate cuts from the Federal Reserve. I would have expected that to at least keep any dollar weakness in check, but that hasn’t happened so far.
Traders are now pricing in just a 28% chance of a 50 basis point rate cut next month. Meanwhile, there are 95 basis points of a rate cut by year-end. Both are modestly lower than they were before last week’s U.S. CPI report here.
But the dollar has had no chance of recovering from the Fed’s rate cuts. Is this a sign of more Fed rate cuts for the dollar throughout the rest of the year?
The bond market remains a key point to watch in this regard. The US 10-year yield remains weak, now at 3.876% on the day, down 1.5 basis points. As long as yields remain flat, the dollar itself may struggle to find much strength or stability to hold on to.
If the technical data is anything to go by, there could be more pain in the near term. The recent rally in EUR/USD does not pose a major challenge for further upside towards the December highs at 1.1123-39.