Asian session review: the US dollar is showing negative dynamics

During today's Asian trading, the US dollar fell against major currencies, continuing yesterday's decline caused by the results of the Fed meeting and statements by Chairman Powell.

The US Dollar Currency Index (DXY), which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona) fell by 0.14% to 103.29. Yesterday, the index fell by 0.34% after the Fed left policy parameters unchanged, but confirmed that three 0.25% rate cuts are expected by the end of 2024. The Fed's “dot plot” also showed three rate cuts in 2025 – one less than expected in December. The FOMC expects three more rate cuts in 2026, and then two more in the future, until the Fed funds rate settles around 2.6%, which is close to what policymakers rate as a “neutral rate" that is neither stimulating nor restrictive. In general, the FOMC statement after the meeting was almost identical to the one made in January, except for raising the estimate of job growth to “strong” from the January characteristic, according to which growth was “moderate”. Fed Chairman Jerome Powell confirmed that policymakers still intend to cut rates by the end of this year. "We think our rate is probably at its peak for this cycle, and if the economy develops as a whole as expected, it will probably be appropriate to start cutting rates at some point this year," Powell said. He added that the main indicators of inflation — the consumer price index and personal consumption expenditures — increased in both January and February. Powell believes that these data are further evidence of a non-linear decline in inflation. "I think they haven't really changed the overall picture, which is a gradual decline in inflation to 2%. We are not going to overreact to the data for these two months, but we are not going to ignore them either,” said Powell, adding that the continued strength of the labor market will not be a reason to postpone interest rate cuts. According to the CME FedWatch Tool, markets see an 8.4% probability of a 25 basis point rate cut at the Fed meeting in May, and a 74.4% probability of a rate cut in June (compared to 59.1% yesterday).

The Australian dollar rose by 0.55% against the US dollar, helped by positive data on the Australian labor market. The Australian Bureau of Statistics said the unemployment rate fell to 3.7% in February from 4.1% in January. Economists had expected a decline to 4%. Meanwhile, the economy added 116,500 jobs last month, blowing away forecasts for an increase of 40,000 jobs following the addition of 500 jobs in the previous month. The participation rate fell to 66.7%, shy of expectations for 66.8% - which would have been unchanged. Experts said that in light of this data, the Central Bank is probably quietly relieved that they did not go further and adopt an outright easing bias this week.