By Daniela Sabin Hathorn, senior market analyst at Capital.com
The US dollar is facing renewed downside pressure as markets become more confident that the Federal Reserve is going to cut rates at its meeting next week. Data from FedWatch suggests almost a 90% chance of a 25bps cut is now priced in, with yesterday’s data releases adding more fuel to the fire. The ADP report for November showed that private employers shed 32,000 jobs, a sharp reversal from the modest gains that had been priced in. At the same time, the PMI data showed dampening confidence in both the manufacturing and services sector.
This data reinforces the narrative that the U.S. economy may be losing steam and that tighter financial conditions are acting as a drag, which strengthens the case for a near-term Fed rate cut. The weak ADP print underscores labour-market deterioration, weakening one of the key constraints that has prevented the Fed from easing.
The next big hurdle before the meeting will be the PCE data. Even though it is delayed from September and may be considered to be stale at this point, a softer print would suffice in confirming the rate cut odds, as markets are looking for any reason to confirm their view of easing policy. A stronger print, however, could dampen this sentiment and weigh on risk appetite, potentially causing a reversal in the dollar heading into next week’s meeting.
US dollar index (DXY) daily chart
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