At the end of 2023, traders were anticipating up to 6 FED interest rate cuts in 2024, but they have been reduced to just 2 or 3 cuts now as the US economy improves. The USD turned quite bearish because of this late last year, but has been gaining ground in 2024 as rate cut expectations continue to be postponed.

JP Morgan Expects 2-3 Rate Cuts

According to a JP Morgan Asset Management official, the US real GDP is forecasted to expand by approximately 2% in 2024. They anticipate that by the end of 2024, the CPI inflation will decrease to the low twos, indicating a gradual cooling of inflation. As a result, the US Federal Reserve is expected to announce two or three interest rate cuts this year, with the possibility of the first one occurring at its June meeting. Given this outlook, the analysts suggest that the environment is favorable for taking risks.

PIMCO Expects 2 FED Rate Cuts

PIMCO’s revised their anticipations for rate reductions by the FED this year. PIMCO, a significant bond manager, has adjusted its forecast from three rate cuts to two, citing the strength of the economy, particularly in light of the recent historic US jobs figure reported on Friday.

PIMCO emphasized that this adjustment reflects their belief that the economy is demonstrating resilience and can withstand higher interest rates. As a result, the likelihood of a rate cut in June, as indicated by market indicators such as FedWatch, has decreased significantly, with the probability estimated to be around 20% rather than 50%. This update aligns with your previous analyses indicating a lower probability of a June rate cut.

USD Index DXY – Daily Chart

The USD index DXY has been increasing this year as a result of fewer FED rate cut expectations, but the 100 SMA (green) has turned into resistance,  stopping this forex pair from climbing further to the upside. However, if the FED confirms that they are delivering just two rate cuts, the USD index will likely push above this moving average soon, as other central banks have already pinpointed the date for the first cut.