Dollar Drifts Near 7-Week Highs As Traders Consider US Rates Outlook

The US dollar clung to seven-week highs against major currencies on Tuesday as investors pondered the outlook for U.S. rates after a strong jobs report last week dashed bets for large rate cuts, while escalating tensions in Middle East dented risk sentiment.

Reuters reports that traders have drastically shifted their monetary easing expectations from the Federal Reserve this year.

Markets are no longer fully pricing in a rate cut in November and are ascribing an 86% chance of a 25 basis points reduction.

Just 50 basis points of easing is priced in by December, down from more than 70 bps a week earlier.
That has kept the dollar on the front foot and surging to a multi-week high against the euro, sterling and the yen, though the yen clawed back some of the losses on Tuesday as rising geopolitical worries led to safe-haven flows.

The dollar index , which measures the U.S. currency against major rivals, last fetched 102.38, just below the seven-week high of 102.69 it touched on Friday.

Head of Asia FX at InTouch Capital Markets, Kieran Williams said a shallower path of cuts from the Fed, coupled with strong data and the prospect of a no landing scenario where the labour market continues to burn hot even as inflation cools has helped support the dollar.