Last week's Nonfarm Payroll data release gained fresh confirmation from Fed Chair Jerome Powell's interview and the ISM Nonmanufacturing PMI. As a result, the US dollar strengthened.
A series of new news prompted market participants to reduce their expectations in the "Fed rate cut" speculation, so the US dollar exchange rate strengthened. The US Dollar Index (DXY) surged above the 104.50s threshold in Monday's New York session trading, continuing to print fresh highs this year.
The publication of the US Nonfarm Payroll data on Friday was a surprise that had a big impact on the US dollar. In addition, the greenback was also boosted by Fed Chairman Jerome Powell's statements at the end of last week.
In an interview with CBS broadcast on Sunday, Powell emphasized the Fed's determination to maintain the current level of interest rates for longer. He said, "The prudent thing to do is ... to give it some time and see the data confirm that inflation is moving down to the 2% (target) on a sustained basis."
The events continued to erode market expectations in Fed rate cut speculation. Fed Funds Futures data shows the total expected 2024 rate cuts have fallen from 150 basis points at the end of last year to 120 basis points currently.
The March rate cut scenario had a chance of around 50% a week ago, but now only 16% remains. The odds for the May rate cut scenario have also shrunk to around 70% from around 90%. In line with that, the US dollar exchange rate strengthened.
Charu Chanana, head of FX strategy at Saxo Bank, said: "Reasons for a bullish USD trend continue to multiply... and now markets having to seriously reassess Powell's pushback to March rate cut pricing."
This evening, the release of ISM's Purchasing Managers' Index (PMI) data also supported the US dollar rally. The US Non-Manufacturing PMI score shot from 50.5 to 53.4 in January 2024, much higher than the consensus estimate of 52.0.
The data alleviated some experts' concerns about the gap between the ISM and Nonfarm Payroll employment data. The Employment Subindex in this Nonmanufacturing PMI report showed a recovery from 43.8 to 50.5 - signalling a resurgence in hiring earlier this year after a wave of layoffs at the end of last year.