The dollar stabilised to some extent on Thursday but could remain under pressure with investors maintaining a strong conviction that the Federal Reserve will cut rates next month.
Markets currently price an 85% probability of a 25-basis-point reduction in December, alongside expectations for three additional cuts through 2026.
Rate-cut expectations strengthened after reports indicated that the pro-rate-cuts National Economic Council Director, Kevin Hassett, is a leading contender to become the next Fed Chair.
This dovish policy outlook could continue to weigh on both the dollar and US Treasury yields. Wednesday’s data offered mixed signals. Initial jobless claims unexpectedly declined, while continuing claims rose. Durable goods orders surprised to the upside. However, the improvement has not altered expectations for a more accommodative policy stance.
Looking ahead, next week’s PMI figures could be the next key macro catalyst. Another contraction in manufacturing and a softening in services could reinforce expectations for a dovish Fed path, exerting further downward pressure on the dollar and yields.
