FX.co ★ Dollar Strengthens on Hawkish Fed Signals

The dollar index maintained levels above 97.5 on Thursday, hovering close to a two-week high, as market participants anticipated a slower pace for potential Federal Reserve rate cuts. Fed Governor Lisa Cook highlighted concerns regarding insufficient progress in curbing inflation, rather than focusing on a cooling labor market, indicating her reluctance to support a rate cut until inflationary pressures diminish. Investors also assessed the potential nomination of Kevin Warsh as Fed chair, taking note of his preference for a smaller Fed balance sheet and the expectation that he may adopt a less aggressive approach to rate cuts. In terms of economic data, the ADP employment report revealed that private sector job growth fell significantly short of expectations, even though activity in the services sector surpassed forecasts. Market attention also shifted to the upcoming policy meetings of the European Central Bank (ECB) and the Bank of England (BOE), with both central banks anticipated to keep interest rates unchanged. Meanwhile, Japan's approaching lower house election this weekend continued to impact the yen, amid speculation about potential fiscal expansion.