The US dollar remains strong, the "Trump trade" is back, and the market bets that the Federal Reserve will cautiously cut interest rates

Data from early October shows that the U.S. economy continues to demonstrate resilience, leading the market to bet that the Federal Reserve's future rate cuts will become slow and cautious, causing the dollar index to rise sharply. Meanwhile, the probability of a Trump victory has surged, further driving the strength of the dollar. Data indicates that the dollar index has rebounded from a year-to-date low of 100.15 at the end of September to around 103.36 currently, recovering all losses since the 50 basis point rate cut in September.

Expectations for a Slower Pace of Fed Rate Cuts Take Center Stage

The strength of the dollar index is mainly attributed to the market's re-evaluation of the Federal Reserve's policy expectations. Slightly higher-than-expected CPI data and unexpectedly strong U.S. non-farm payrolls indicate that the U.S. economy remains very healthy and is likely to achieve a soft landing, which has weakened previous market expectations for significant rate cuts by the Fed in November.

The Fed initiated a rate cut cycle at its September meeting, but it is clear that the pace of future cuts will be more cautious. In particular, Fed Governor Waller's comments about pausing rate cuts have once again signaled a cautious approach to future cuts. Whether the Fed continues to maintain a gradual rate-cutting pace will directly impact the dollar's short-term trajectory. Currently, the market widely expects an 89% probability of a 25 basis point rate cut by the Fed in November, with a total cut of 45 basis points for the year.

Rising Victory Expectations, "Trump Trade" Returns

Another significant factor influencing the dollar is the U.S. election. With less than three weeks remaining until the November election results are announced, expectations for a Trump victory are gradually rising, leading the market to price in his winning prospects, which has propelled the dollar's strength, U.S. stock market highs, and cryptocurrency gains.

Trump's campaign policies indicate that if he wins the election, he will implement policies of raising tariffs externally and cutting taxes internally, which would significantly increase the probability of re-inflation in the U.S., warming expectations for a more hawkish Fed in 2025-26. A stronger economy would also further boost the dollar. Current prediction market Polymarket shows that the probability of Trump defeating Harris has risen from about 50% at the end of September to around 58%.

Dollar Strengthens Against Major Currencies

Entering October, the euro, pound, and yen appear weak. The euro is nearing its lowest level against the dollar since August, with the market eagerly anticipating the upcoming European Central Bank policy meeting, but generally believes that the ECB will maintain a dovish stance and may cut rates again, which undoubtedly puts pressure on the euro.

For the pound, as the U.K. economic data worsens and market expectations for larger rate cuts deepen, the downward pressure on the pound has significantly increased, with the pound falling over 2% this month.

The yen's decline has recently eased, but the market remains uncertain about the Bank of Japan's policy direction. The dovish comments from the Bank of Japan's governor and the new prime minister's policy statements have created greater uncertainty regarding the timing of any tightening by the Bank of Japan, with the yen having fallen 3.7% this month.

In the current market environment, the continued strength of the dollar and the persistent weakness of major currencies undoubtedly provide ample entry opportunities for forex investors. Whether for short-term trading or longer-term diversified currency allocation, this stage is an opportunity that cannot be overlooked.

4E, as a one-stop comprehensive trading platform, supports trading in nearly 20 currency pairs including the dollar, euro, pound, yen, Australian dollar, New Zealand dollar, Canadian dollar, and Swiss franc, offering leverage of up to 1000 times. Compared to other platforms, 4E has abundant liquidity and significantly lower spreads, providing investors with a more attractive trading environment, allowing trading anytime via mobile with just USDT.

As the official partner of the Argentine national team, 4E also supports trading in over 600 assets including cryptocurrencies, commodities, stocks, and indices, as well as various financial products, with an annualized yield of 2.5% for demand deposits and 5.5% for 30-day fixed deposits. Additionally, 4E has established a $100 million risk protection fund, adding another layer of security for users' funds, helping investors trade with peace of mind.