will remain positive, but with a gradual slowing trend, and this will allow the Fed to begin easing policy in May as it focuses on achieving a soft landing first.
In conclusion, the Federal Reserve’s dovish shift and rising expectations for interest rate cuts dominated the foreign exchange market this week. The U.S. dollar index weakened and the Canadian dollar continued to strengthen as traders priced in expectations for a rate cut. Federal Reserve officials signaled a series of rate cuts next year, prompting a sharp decline in the dollar. However, a “hawkish” speech by the “third in command” of the Federal Reserve, John Williams, led to a rebound in the dollar on Friday. With the market now anticipating a rate cut in March, the U.S. economic calendar data displayed downward bias, with services PMI showing signs of improvement but manufacturing remaining a drag on the economy. Industrial output rebounded in November, reflecting a pickup in activity at automakers and parts suppliers. The revised U.S. real GDP growth forecast by the Congressional Budget Office reflected falling inflation, dovish central bank repricing, and lower real interest rates. Overall, the foreign exchange market this week was dominated by shifting expectations and economic data pointing to a potential soft landing for the U.S. economy.