DXY H4 - 15.01.24 | Our expectations from the FED

Last week, the slightly higher-than-expected U.S. core inflation data may have tempered investors' expectations of the Federal Reserve initiating interest rate cuts in March, possibly delaying the first rate cut until May.

Despite the transition from a high-interest-rate period to a low-interest-rate period initiated by all central banks, the Fed might pursue a somewhat slower pace of interest rate cuts compared to other central banks. This could contribute to a gradual, albeit slow, increase in the value of the dollar.

Following the December meeting of the Federal Reserve, we believe that there is indeed a slightly more optimistic sentiment among investors. Investors have priced in a series of six interest rate cuts, each at 0.25 basis points, starting in March, with a total of seven rate decisions by the end of the year. Except for one, there is an expectation of a cut in all decisions by March. However, it's crucial to note that reducing inflation from 8.5% to 3.5% is easier than reaching the target range of 2-2.5% from 3.5%. Looking ahead, to achieve the desired levels while maintaining a strong economy and employment, we may see 4 or 5 cuts instead of 6, and the first cut could occur in May instead of March. We believe that the Fed, relying on the strength of the U.S. economy, will navigate this process with slightly slower but more consistent and confident steps compared to other central banks.