US Dollar Index rises to near 98.00 due to Fed hawkish signals

• US Dollar Index strengthens on hawkish Fed signals and expectations of a slower pace of rate cuts.
• Fed’s Cook said she won’t support further cuts without clearer evidence that inflation is easing.
• Markets weigh Warsh’s Fed chair nomination, noting his preference for a smaller balance sheet and fewer rate cuts.

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, gains ground for the second successive session and is trading around 97.80 during the Asian hours on Thursday.

The Greenback strengthens on hawkish signals from the Federal Reserve (Fed) and expectations of a slower pace of US rate cuts. Fed Governor Lisa Cook said she would not back another cut without clearer evidence that inflation is easing, stressing greater concern over stalled disinflation than labor market weakness.

Moreover, the implications of Kevin Warsh’s nomination as Fed chair are citing his preference for a smaller balance sheet and a less aggressive approach to rate reductions. However, US President Donald Trump said he would not have nominated Warsh if he favored rate hikes. Trump further stated that there was “not much” doubt the US central bank would lower rates because “we’re way high in interest,” but now “we’re a rich country again.”

On the data front, the ADP Employment Change showed private payrolls increased by just 22K in January, well below market expectations for a stronger 48K reading and 37K (revised from 41K) prior. The weak print carried extra weight given the postponement of official government data. Institute for Supply Management (ISM) remained unchanged in January, with the ISM Services PMI holding steady at 53.8. The print, however, came in above analysts' expectations of 53.5.