The US Dollar remains under pressure as trade war fears continue to ease

It’s another negative European session for the greenback as the market continues to sell off the US Dollar due to the easing in trade war fears. Trade war fears have been the only thing keeping the bid under the USD as interest rate expectations and economic data took the second place in importance.

As a reminder, the repricing in rate cuts expectations reached the peak after the last US NFP report and then the market returned into a dovish pricing following the benign US inflation data (the market is still pricing roughly two rate cuts for 2025). The US 10 year yield below offers a great example.

On Friday, we get the January NFP and it will likely be another good report. That might lead to a short term relief rally for the US Dollar but as we’ve seen with the US Job Openings yesterday, the labour market continues to normalise and it’s not a source of inflationary pressures anymore. So, the potential US Dollar rally might be faded.

That doesn’t mean that the Fed will cut more than the two times projected for this year but it also doesn’t call for a more hawkish repricing. So, the path of least resistance for the US Dollar (barring negative tariffs outcomes) might remain to the downside as the market is more likely to move into a more dovish path.

This article was written by Giuseppe Dellamotta at www.forexlive.com.