The US dollar reclaimed its strength in the global currency market on Wednesday, with the Dollar Index (DXY) climbing +0.65% and breaking to a two-week high. The sharp rebound reflects a notable shift in market sentiment, occurring just as expectations for Federal Reserve rate cuts weakened once again.
A major catalyst came from an unexpected decision by the Bureau of Labor Statistics (BLS) to cancel the release of October employment data — a rare move that significantly altered market dynamics ahead of the December FOMC policy meeting.
With this key economic signal missing, markets are left with fewer indicators to gauge the Fed’s direction, pushing investors back toward the dominant narrative of higher interest rates for longer.
Hawkish sentiment deepened following the release of the October 28–29 FOMC meeting minutes, which revealed that “many Fed officials” believe interest rates may need to remain elevated through late 2025. This triggered a broad repricing of monetary policy expectations:
- The probability of a 25 bps rate cut in December has now dropped to 28%,
- down sharply from around 70% last week.
US Economic Fundamentals: A Mix of Weak and Solid Signals
Domestic economic data painted a mixed picture. Housing finance activity weakened further, with MBA mortgage applications down -5.2% last week. Mortgage rates climbed to 6.37%, a historically elevated level that continues to pressure the housing sector.
However, not all indicators point to softness. The US trade deficit narrowed to -$59.6 billion, coming in stronger than expected. The tightening in trade balance suggests moderating import demand and indicates that net trade could contribute positively to GDP in the coming quarters — offering an additional layer of fundamental support for the dollar.
Ade Yunus, ST WPA
Global Market Strategies