US dollar poised to close out winning week

Dollar Eyes Weekly Win on Mixed Data, FOMC Meeting Looms Large
The US dollar looks set to end the week on a high note, holding onto a gain of 0.12%. This comes despite mixed economic data, with weak consumer sentiment countered by stronger industrial production figures. The dollar Index (DXY) was last seen at the 103.484.

The key driver for the dollar’s strength has been rising US Treasury yields, fueled by hot inflation data earlier in the week. Investors are looking ahead to next week’s Federal Open Market Committee (FOMC) meeting, where updated economic forecasts could further bolster the dollar.

The Fed’s stance on future rate cuts remains a key question. While inflation persists, recent labor market data has softened expectations for an immediate easing. Next week’s FOMC “dot plot” could provide clarity on the Fed’s projected path, potentially influencing the dollar’s trajectory.

Although consumer sentiment dipped slightly this month, inflation expectations remain anchored near 3%. Positive signs emerged from industrial production, which saw an improvement compared to the previous month.

Treasury yields continue their climb, with investors anticipating no rate cuts in the immediate future. The market is particularly interested in whether the Fed can achieve a “soft landing,” controlling inflation without derailing economic growth. While projections for a May cut remain low, a June cut holds some weight. The focus will be on whether the Fed maintains its forecast of three cuts in 2024.