The US dollar remained stable as traders await crucial inflation reports expected to determine the size and timing of the Federal Reserve’s upcoming interest rate cuts, amid growing expectations for a more accommodative monetary policy in the coming period.
This stability followed a disappointing jobs report that reinforced forecasts for a rate cut at the central bank’s next meeting. Now, investors are no longer questioning whether rates will be cut, but by how much 25 basis points or 50. This decision is closely tied to the impact of tariffs on prices in the world’s largest economy, with producer price inflation data due soon, followed by consumer inflation data.
Markets have fully priced in a 25 basis point cut, with only a 5% chance assigned to a deeper 50 basis point reduction. Current expectations indicate a total reduction of 66 basis points this year.
According to economic analysts, a 50 basis point cut would require a clear surprise drop in core inflation, especially as service prices remain elevated and the Fed prefers a gradual approach in its decisions. This makes a large cut at this stage unlikely, unless the data is significantly surprising.
In currency markets, there was little change in the euro, which stabilized after falling in the previous session, while the Japanese yen also held steady against the dollar. The Australian dollar posted slight gains, hovering near a seven-week high. The US Dollar Index which measures the greenback against six major currencies remained stable after previous gains, though it is still down about 10% since the start of 2025, amid volatile US trade policies and mounting rate cut expectations that have weakened the dollar’s appeal.
Investors reacted calmly to unprecedented legal developments after a court issued a temporary order preventing President Donald Trump from firing a member of the Federal Reserve Board—a case likely to reach the Supreme Court and raising concerns about potential impacts on central bank independence.
On the geopolitical front, attention shifted after Poland announced it had activated its air defenses, along with NATO’s, to counter drones following a Russian airstrike on western Ukraine.
On the economic data front, a recent report showed that the US economy may have created 911,000 fewer jobs over the twelve months ending in March than previously estimated, indicating that labor market weakness started even before the new tariffs took effect.
Despite these signs of weakness in the labor market, markets have not changed their expectations for a rate cut, as the data is considered outdated and does not reflect employment since March.
Market experts believe a 50-basis-point cut could actually undermine investor confidence rather than support it, emphasizing that the Federal Reserve would not want to appear as if it’s yielding to political pressure. Current market pricing indicates expectations for three rate cuts in the next three meetings, putting the Fed in a position to meet these forecasts without resorting to aggressive moves that might unsettle markets or damage its credibility.
Amid this global environment full of economic and political volatility, the US dollar remains under the spotlight—not only as a gauge of US economic strength, but also as a barometer for global monetary policy trends.
Stay informed about global markets through our previous analyses. and Now, you can also benefit from LDN company services via the LDN Global Markets trading platform.
