The U.S. dollar rose to a more than one-week high as traders weighed FED rate cut bets and Red Sea tensions

(1) The dollar rose on Tuesday, hitting as high as 102.93, the highest since Jan. 5, up about 0.34%, as investors reduced bets on the Fed's near-term interest rate cut after hawkish comments from European Central Bank officials, while fears of more attacks on ships in the Red Sea weighed on risk sentiment. (2) EUR/USD is currently down 0.3% at 1.0917, the biggest one-day drop in two weeks. Central Bank officials' rhetoric against expectations of an early rate cut has clouded the global Intrerest Rate outlook. Central Bank Governing Council member Joachim Nagel said on Monday that it was too early for the central bank to discuss cutting interest rates as inflation remains stubbornly high. (3) Money markets expect the Central Bank to cut interest rates by 145 basis points this year, most likely from April. (4) "Last night's hawkish comments from the Central Bank raised concerns that the market may also be pricing too aggressively on the path of the Fed's Intrerest Rate," said Charu Chanana, head of FX strategy at Singapore's Saxo. ” (5) Yemen's Houthi rebels said on Monday that the Houthis would expand their targets in the Red Sea region to include U.S. ships. The group has vowed to continue its attacks after the United States and Britain cracked down on Houthi military targets in Yemen. (6) Investors are now paying close attention to Fed Governor Waller's speech, whose dovish pivot at the end of November helped drive the market to a strong rally towards the end of the year. Waller will speak later on Tuesday. (7) CME FedWatch shows that the market is now pricing in a 70% chance of a 25 basis point rate cut by the Fed in March, compared with 77% a day ago, highlighting that rate cut expectations are changing. (8) However, traders expect rate cuts of more than 160 basis points this year, up from 140 basis points expected last week. Hamish Pepper, fixed income and currency strategist at Harbour Asset Management, said: "We think the market's expectation that the Fed will cut rates by almost seven 25 basis points this year is a bit excessive. ” (9) He added that if the market reassesses easing expectations and pushes short-term Intrerest rates higher, the dollar is likely to find support. "Yes, inflation, including core measures, has fallen faster than expected, but the labor market still looks too hot and could make it difficult for inflation to go all the way back to 2%"