The U.S. dollar remained capped near its recent high as market participants braced for key global data releases and central bank decisions that could steer market direction. In the U.S., all eyes are on the Federal Reserve’s upcoming interest rate decision later this week. While a 25-basis point cut is widely expected, market participants will focus on the Fed’s 2025 outlook for insights into the future path of interest rates. A hawkish tone could further support the dollar’s recent rally, while a dovish stance might weigh on the greenback.
U.S. Treasury yields stabilized, with the 10-year yield hovering near 4.4%. Shorter-dated maturities gained attention as investors focused on the front end of the curve, anticipating higher inflation risks tied to a potential Trump administration. Meanwhile, the yield spread between U.S. and Chinese 10-year bonds reached a new high, providing further support for the dollar. Today’s economic data releases could affect treasuries as stronger-than-expected data could drive yields higher.
In this regard, U.S. retail sales data and the European ZEW index are likely to inject additional volatility into the market. Traders are also closely monitoring the Bank of England (BoE) and Bank of Japan (BoJ) interest rate decisions on Thursday. While the BoE is expected to maintain rates, uncertainty around the BoJ’s policy stance could temper near-term dollar gains, as any potential rate hike may prompt a shift in flows toward the yen.
