Interest Rate Futures Pricing: Fed Unlikely to Cut Rates This Year, US Dollar Index (DXY) Breaks Above 110

BlockBeats News, January 13th. The US Dollar Index (DXY) broke above the 110 level, marking the first time since November 2022, with an intraday gain of 0.34%. US stock index futures were down, with Nasdaq 100 futures falling 1.22%, Dow futures falling 0.4%, and S&P 500 futures falling 0.86%.

US interest rate futures no longer fully price in the expectation of a Fed rate cut this year, following last Friday's release of strong monthly employment data highlighting the resilience of the US economy. Interest rate futures indicate that traders now expect the Fed to cut rates by only 24.26 basis points by December this year, compared to around 43 basis points before the employment data was released. Currently, traders are increasingly less willing to bet on how much the Fed will cut rates from the current 4.25-4.50% range, which in turn has boosted the US dollar against most other major currencies. Against the backdrop of rising inflation and borrowing cost expectations, US bonds were sold off this month, pushing up (10-year) bond yields and leading investors to believe more strongly that the Fed's room for rate cuts may not be as large as previously expected. (FX168)