The US dollar strengthened amid market anticipation ahead of the release of several high-impact US economic data this week.

The US dollar exchange rate rallied in early 2024 trading. The US Dollar Index (DXY) jumped around 0.7% to a high of 102.19 thanks to a surge in the US Treasury yield. The greenback was also supported by market anticipation ahead of the release of several high-impact US economic data this week, as well as the escalation of Middle East geopolitical conflicts.

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The 10Y US Treasury yield at the opening of this year managed to carve out the largest daily gain in three weeks. Its position had reached 3.963%, although it has now slipped to the 3.930% range. In turn, this rise in yield lifted the US dollar exchange rate.

The forex calendar for the first week of 2024 is loaded with important reports such as Eurozone inflation and US Nonfarm Payroll (NFP). In addition, the Fed will publish the minutes of the FOMC meeting held in December tomorrow.

"Primary corporate issuance ($60 bn estimated in the US alone) could support this mean reversion in yields. Then FOMC minutes and payrolls will set the tone, and fine tune expectations for Jan and March FOMC meetings," said Kenneth Broux senior strategist FX and rates at Societe Generale.

CME FedWatch currently shows that the market has priced in an 82% chance of a Fed rate cut from March 2024. The scale of the Fed's rate cuts so far this year is estimated at more than 150 basis points. However, expectations may fluctuate as new economic data and the rhetoric of Fed officials emerge.

Market participants are also monitoring the escalation of the conflict in the Red Sea. The situation began when Houthi militias hijacked several Israeli-related ships as part of a Palestinian solidarity action. The US and UK then sent a fleet to retaliate against the Houthis. In the latest development, Iran condemned the actions of the two countries and sent its warships to support the Houthis. The escalation of this situation risks triggering an increase in world oil prices.