USD weakens as Fed officials signal caution on future rate cuts

The US dollar faced broad selling pressure as Federal Reserve officials expressed caution regarding the pace of future rate cuts, creating uncertainty in global markets. Several Fed policymakers suggested a more gradual approach to monetary easing, tempering market expectations for aggressive rate reductions in 2024. This hawkish tilt initially supported the dollar but ultimately led to position unwinding as traders reassessed the Fed's commitment to supporting economic growth. The shift in Fed communication has rippled through forex markets, with major pairs showing increased volatility as investors adjust their rate differential calculations. The dollar index retreated from recent highs, while risk-sensitive currencies found support. Market participants are now closely watching upcoming Fed speeches and economic data releases for clearer guidance on the monetary policy trajectory. The cautious Fed stance suggests a data-dependent approach, keeping traders on edge ahead of key inflation and employment reports.