Investing.com — It jumped on Friday to a weekly win, as a strong jobs report cooled bets on a Fed rate cut in September, but that is unlikely to mark a major reversal in the dollar's bumpy ride lower unless it signals… The Fed points out that it is not. It is unlikely that any cuts will be made this year.
“To stimulate a larger reversal of recent dollar weakness, the May US CPI report and/or FOMC meeting should cast serious doubt on whether the Fed will cut interest rates at all this year,” MUFG said in a note on Friday. “.
MUFG added that ahead of the Fed's two-day meeting next week, bets on a hawkish Fed halt received a boost after today's “strong US Nonfarm Employment Forces report on employment and wage growth.”
Friday's report arrived on the back of labor market updates this week, including data showing job openings fell to a three-year low.
September rate odds fell to 45% on Friday from 55% the day before, according to Investing.com.
Earlier this year, the Fed signaled three cuts for this year, but stubborn inflation and a strong jobs market suggest the economy doesn't need any help from multiple interest rate cuts.
“We expect the updated Fed forecasts to show an upward revision to inflation expectations for this year but it is not enough to prevent the Fed from continuing to signal that it plans to deliver multiple interest rate cuts in the second half of this year,” MUFG said.
Morgan Stanley said upcoming May CPI inflation data due on Wednesday may also play a role in the Fed's thinking and the dollar's next move.
“We expect the US dollar to fall if the May CPI surprises lower, prompting the committee to leave its March forecasts for core personal consumption expenditures and the federal funds rate unchanged in September,” Morgan Stanley said.