By Bas Kooijman, CEO and Asset Manager of DHF Capital S.A
The dollar paused its recent advance on Wednesday as investors adopted a cautious stance ahead of a fresh batch of economic releases. Despite the temporary consolidation, the broader backdrop continues to reflect a risk-averse environment driven by escalating geopolitical tensions and renewed inflation concerns. The tensions between the United States and Iran have pushed oil prices higher, raising fears of energy-driven inflation, which helped support both the dollar and Treasury yields. The 10-year yield has climbed to its highest level in roughly two weeks.
Recent economic data have also reinforced a constructive outlook for the currency. February’s ISM Manufacturing survey confirmed a second month of expansion, while the prices component increased. As a result, the first Federal Reserve rate cut is expected later in the year than previously estimated. Even so, two quarter-point cuts are still anticipated this year.
Federal Reserve officials have echoed this cautious tone. Minneapolis Fed President Neel Kashkari noted that the central bank faces a complex environment, with geopolitical shocks threatening to complicate the inflation outlook.
Attention now turns to today’s ADP employment report and the ISM Services PMI, followed by Friday’s Non-Farm Payrolls. Strong labour data would likely reinforce the upward pressure on yields and the dollarwhile weaker figures could revive expectations of earlier policy easing.
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