The U.S. dollar has experienced a significant turnaround, driven by a robust increase in U.S. Treasury yields following a hawkish reevaluation of the Federal Reserve’s monetary policy outlook. Market expectations for interest rate cuts have been scaled back, shifting from a forecast of nearly 160 basis points to only 124 basis points for the year. Additionally, the likelihood of the FOMC beginning to reduce borrowing costs at its March meeting has decreased from 77% to 46%, contributing to the greenback’s positive performance against major counterparts.
Amidst these developments, all eyes will be on the U.S. PCE report this week, providing crucial insights into the U.S. economy and consumer prices. Traders eagerly anticipate the release, particularly focusing on consumer spending growth and core PCE. Any results above consensus estimates could signal continued strength in the U.S. economy, potentially driving Treasury yields higher and reinforcing the U.S. dollar’s bullish reversal. Conversely, subdued numbers could validate easing expectations and put the greenback back on a depreciating path.
In the technical analysis for major currency pairs, potential support and resistance levels are identified for EUR/USD, USD/JPY, USD/CAD, and AUD/USD. The outlook for these pairs is contingent on various factors, including sentiment, economic activity, inflation, and monetary policy, with detailed technical charts providing clarity on potential price movements. Traders are advised to stay informed and monitor key economic data and developments to navigate the dynamic landscape of the foreign exchange market effectively.