February 12, 2025 (Globalinvestorideas.com Breaking Stock Market News and Commentary) Today’s markets analysis from : Rania Gule, Senior Market Analyst at XS.com – MENA
The U.S. Dollar Index (DXY) has stabilised around the 108.00 level as investors await the release of U.S. inflation data and the continuation of Jerome Powell’s testimony before Congress. The first day of Powell’s testimony did not provide decisive signals regarding future monetary policy direction, as the Federal Reserve Chair kept things vague without confirming any intentions to cut interest rates soon. However, markets still attempt to interpret his stance by monitoring upcoming inflation data and U.S. Treasury bond yield movements.
In my view, January’s inflation expectations point to a 0.3% month-over-month increase in the Consumer Price Index (CPI), compared to 0.4% in December. Meanwhile, the core index is expected to rise by 0.3% from 0.2% in the previous month. These numbers could be crucial in guiding markets, as stronger-than-expected data could reinforce expectations of keeping interest rates high for a longer period, supporting the U.S. dollar. On the other hand, any unexpected decline in inflation could reignite discussions about the possibility of a rate cut later in the year, which could pressure the dollar.
This comes as the yield on 10-year U.S. Treasury bonds continues to rise, having reached 4.54% after increasing for the third consecutive day, recovering from its lowest levels of the year. Rising yields typically support the U.S. dollar, as they reflect market expectations that the Fed will maintain its tight monetary policy for an extended period. The likelihood of the Fed keeping interest rates unchanged at its next meeting on March 19 stands at 95.5%, meaning markets still dismiss any near-term rate cuts.
The U.S. dollar does not seem to be significantly impacted by the ongoing trade escalation, as China has imposed some tariffs on U.S. goods in response to decisions made by President Donald Trump’s administration, which in turn announced a 15% tariff on imported steel and aluminium, set to take effect in March. Trade wars usually affect investor confidence, but at this stage, their impact on the dollar appears limited, perhaps due to the market’s focus on U.S. monetary policy.
In my opinion, equity markets saw some volatility after Powell’s speech, with the German DAX index hitting an all-time high, while U.S. indices moved within narrow ranges. Investors are awaiting clearer signals from the upcoming inflation data, and potentially further remarks from Fed officials in the coming days. Federal Reserve Bank of Atlanta President Raphael Bostic is expected to give a speech that could provide more clues on the Fed’s future stance, alongside upcoming comments from Federal Reserve Governor Christopher Waller.
In the short term, I believe the most likely scenario is for the Dollar Index to continue trading within a narrow range until the inflation data is fully absorbed. A break above the 108.00 level could pave the way for a test of the 110-112 range, especially if the inflation data comes in higher than expected or if the Fed continues to hint at keeping rates elevated. Conversely, any negative surprise in the inflation data or more dovish comments from Fed officials could push the index towards the 105 level, with renewed discussions about the possibility of easing monetary policy later this year.
Overall, markets remain in a state of anticipation, with investors hesitant to make big bets until there is more clarity on U.S. monetary policy. So far, it does not seem to me that the Federal Reserve is in a rush to change course, which supports the dollar’s stability at present. However, any surprises in the upcoming economic data could reshape the landscape, making the near future crucial in determining the direction of the dollar and global financial markets.
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