Data related to the labor market and inflation rate will continue to attract attention until the next Fed meeting, which will impact the US dollar.

The US dollar index (DXY) initially declined yesterday but recovered to 104.96 in the middle of the New York session today (March 2). The US dollar also moderately strengthened against all major currency pairs, supported by jobless claims data and comments from Federal Reserve officials.

dxyDXY Daily chart via TradingView

The number of weekly jobless claims for the week ending on February 25, 2023, only increased by 190k. This is lower than the previous period's increase of 192k and below the consensus estimate of 195k. This is because tight labor market conditions and rising prices can push the Fed to raise interest rates higher than expected. Combined with the significant increase in the sub-index of the US Manufacturing PMI price yesterday, this report provides a basis for a rebound in the US dollar.

Most market participants expect the Fed's interest rate to peak at 5.5%-5.75% by September 2023. However, the Fed's previous dot plot scheme only predicted an increase to around 5.1% by mid-year.

Hawkish rhetoric from several Fed officials has also raised expectations for interest rates. The President of the Minneapolis Fed, Neel Kashkari, believes that a higher interest rate than his previous estimate (5.4%) would be appropriate to lower inflation. Meanwhile, the President of the Atlanta Fed, Raphael Bostic, said that interest rates need to be 5.0%-5.25% until 2024 to control inflation without causing a recession.

The following market participants will monitor the ISM Non-Manufacturing PMI data release, which usually has a more significant impact than the Manufacturing PMI. In addition, other data related to the labor market and inflation will continue to attract attention until the next Fed meeting on March 21-22, 2023.