Inflation and geopolitics support the dollar
The DXY dollar index has been stabilizing for a few days after rising last week to key resistance at 100 points. As expected, the dollar was supported by escalating geopolitical tensions and stronger-than-expected inflation data that prompted many Fed members to moderate their rate cut outlook.
The Federal Reserve kept rates unchanged last night, but adopted a more cautious tone in the face of inflationary risks. Its projections incorporate slightly stronger growth and higher inflation, which marginally lowers the chances of possible rate cuts this year. Several members now do not anticipate any decline this year.
Jerome Powell stressed that further progress on inflation will be necessary before considering a change of course and the Committee stressed the importance that economic agents’ inflation expectations remain anchored. This means that the Fed sees the surge in energy prices as “transitory” for the moment, but that if it lasts and/or inflation expectations begin to unanchor, it should react by raising rates.
