Market anticipates non-farm payrolls? Interest rate cut expectations rise, and the US dollar index falls

Zhitong Finance has learned that ahead of the latest non-farm payroll data release in the United States, traders have increased their bets on the Federal Reserve lowering interest rates this month, leading to a decline in the U.S. dollar index. As of the time of writing, the Bloomberg Dollar Spot Index has fallen by 0.2%, with the dollar declining against all G10 currencies except the yen. Following Federal Reserve Governor Waller's indication that he leans towards voting in favor of a rate cut, the money market has intensified its bets on a 25 basis point rate cut by the Federal Reserve in December. On Monday, after U.S. President-elect Trump issued a tariff threat against BRICS countries, market participants are refocusing on the near-term outlook for the U.S. economy and policy rates, prompting the dollar to record its largest single-day gain in about three weeks. Chris Turner, Global Markets Research Director at ING Groep, stated: "What we should really focus on this week is the U.S. data and the outlook for the Federal Reserve's easing policy. If today's JOLTS data unexpectedly shows a decline and indicates further signs of weakness, then there is room for short-term U.S. rates and the dollar to fall." Traders believe that the likelihood of the Federal Reserve cutting rates by 25 basis points this month is about 70%, up from 55% on Monday. Three Federal Reserve officials clearly stated on Monday that they expect to cut rates again next year, although they do not all explicitly indicate a rate cut in December like Waller. In addition to the outlook for the U.S. labor market, investors are also closely monitoring the deteriorating backdrop of other major economies, as there are signs that the dollar may continue to be supported by weakness in other regional currencies. Political uncertainty in France is increasing, and the bleak economic outlook in Europe is also dampening market sentiment. These conflicting trends create a tricky backdrop for dollar trading, with many investors preparing for volatility in the coming days. Lauren van Biljon, a fund manager at Allspring Global Investments, believes that if the Federal Reserve cuts rates and signals further easing, dollar long positions may be tested. She said, "The market is currently heavily accumulating dollars, partially reduced before Thanksgiving, but that may only be a drop in the bucket. There may be pressure to close positions before the end of the year, starting 2025 at a more balanced level." Meanwhile, dollar bulls are entering a month that has historically been unfavorable for the dollar. Seasonal factors indicate that the likelihood of dollar appreciation from now until the end of the year is low. In the last 10 years, the dollar has fallen in 8 of the 12 Decembers, often a victim of year-end portfolio rebalancing flows and the so-called "Santa Rally." The Santa Rally encourages traders to sell dollars and buy riskier assets like stocks