By Bas Kooijman, CEO and Asset Manager of DHF Capital S.A
The Dollar Index was relatively stable on Thursday, extending its consolidation phase as a mix of uncertainty and caution dominated the market. Ongoing concerns about the implementation of new import tariffs and potential new developments in trade policy continue to cloud the outlook for US-denominated assets and could weigh on the dollar.
At the same time, the currency could continue to find support from the cautious commentary from several Federal Reserve members. Many have mentioned that monetary policy could remain unchanged for some time, with interest rates on hold at current levels. However, expectations continue to point to two cuts this year, which could add some pressure over the long run.
In the near term, price action is likely to remain range-bound pending fresh catalysts. Today’s jobless claims and Friday’s PPI release will be pivotal in shaping rate expectations. Evidence of sticky inflation and a resilient labor market would support yields and underpin the dollar. Conversely, softer data could reinforce Fed cut expectations this year and weigh on the dollar and yields.