By Bas Kooijman, CEO and Asset Manager of DHF Capital S.A
The US dollar was relatively stable on Thursday, with traders adopting a cautious stance ahead of new data releases that could reshape expectations for Federal Reserve policy and drive renewed volatility across currencies and bond markets.
The main focus is on US inflation data, where both headline and core CPI are expected to remain relatively stable. Any signs of renewed disinflation could reinforce expectations of future rate cuts, weighing on the dollar and treasury yields. Conversely, evidence of persistent price pressures could challenge the easing narrative and provide support to both the greenback and yields.
Markets will also monitor weekly jobless claims, expected to fall to 225,000. An upside surprise would likely add to concerns about a softening labor market, particularly after this week’s jump in the unemployment rate from 4.4% to 4.6%, the highest since September 2021, and a mixed nonfarm payrolls report.
Fed communication remains an important driver. On Wednesday, Governor Christopher Waller struck a cautiously dovish tone, arguing that policy may still be 50 to 100 basis points above neutral, implying scope for further easing if labor market conditions deteriorate.
Beyond the US, a busy slate of global central bank decisions adds another layer of risks. The Bank of England is expected to cut rates, which could support the dollar against sterling. The European Central Bank is widely expected to hold rates steady. In contrast, the Bank of Japan is expected to raise rates, a move that could strengthen the yen.