The dollar rises in light of bets on interest rates and tensions in the Red Sea

The US dollar index witnessed an increase on Tuesday, January 16, as investors reduced their bets on a near-term cut in interest rates by the US Federal Reserve in the wake of tough statements from European Central Bank officials, while fears of more attacks on ships in the Red Sea affected the desire to... Risk.

Dollar and major currency pairs

The US dollar index against a basket of currencies rose 0.253% to 102.90 points, after rising 0.2% overnight in quiet trading during a public holiday in the United States on Monday.

The euro fell 0.3% to $1.09185, heading towards the largest percentage decline in one day in two weeks. The pound sterling fell in the latest trading to $1.2681, down 0.36% during the day and away from the highest level in nearly five months at $1.2825, which it recorded in late December.

Comments from European Central Bank officials opposing early cuts in interest rates cast a shadow over the outlook for interest rates globally.

An official from the Yemeni Houthi movement said on Monday that the group would expand its targets in the Red Sea region to include American ships, and the group pledged to continue attacks after the American and British strikes on its positions in Yemen.

A group of US Federal Reserve officials is scheduled to speak this week, including Christopher Waller, a member of the Board of Governors of the Central Bank, who will deliver a speech about economic expectations before the Brookings Institution later on Tuesday.

70% expectations that the US Federal Reserve will cut interest rates in March by 25 basis points

The FedWatch tool showed that markets expect a 70% chance of the US Federal Reserve cutting interest rates by 25 basis points in March, compared to 77% the previous day and 63% the previous week, highlighting the changing expectations for interest rate cuts.

However, traders expect cuts of more than 160 basis points this year, up from the 140 basis points expected last week.

Japanese yen movements

The yen fell 0.20% to 146.07 per dollar after data showed that the producer price index remained flat in December compared to last year and slowed for the twelfth month in a row.

The data indicates that the acceleration in inflation will moderate in the coming months and will ease pressure on the Bank of Japan to phase out its massive stimulus programs soon.

Expectations of a shift in monetary policy by the Bank of Japan strengthened the yen towards the end of 2023, and the currency rose 5% against the dollar in December. It has since fallen sharply and is down 3% so far in January.