And in turn, that is keeping the dollar underpinned as we also get into European trading today. USD/JPY is now up 0.4% to 136.90 while EUR/USD is down 0.2% to 1.0838 with GBP/USD down 0.4% to 1.2431 on the day. There's still plenty of pushing and pulling in broader markets but this graph here is one that traders should be paying close attention to:
As you can see, Fed funds futures have shifted up rates pricing for the remainder of the year in the past week. And while that still does not mean much, it is a start perhaps. I talked about this potential tailwind for the dollar two weeks ago:
The prospect of three rate cuts by year-end is now less certain than it was a week ago and that is arguably helping to give the dollar a bit more of a lift this week.
Even though this may still mean that the Fed heads to the sidelines, the fact that markets are still having to play catch up even if the Fed decides to stick to a higher for longer policy narrative bodes well for the dollar.
And perhaps that is what we are starting to see now.
