The US dollar index has closed higher for two consecutive days: the expectation of a rate cut by the Federal Reserve is being questioned, and hedge funds are reducing their short positions.

Notice that the US dollar has slightly increased for the second consecutive trading day, ignoring the market's expectation of about three rate cuts by the Fed this year. The Bloomberg US Dollar Spot Index rose by 0.1%, despite the yen strengthening by about 0.4%, the index maintained its high level due to the decline of other currencies in the basket. The options market shows that the short-term bearish sentiment towards the US dollar has eased, with the so-called near-term risk reversal indicator at its lowest level in nearly a month. Currency markets currently expect the Fed to cut rates by about 64 basis points by the end of the year. Some strategists believe that this expectation is too aggressive, as three rate cuts may exceed what economic data can support, making the market vulnerable to a dollar rebound. Elias Haddad, Global Market Strategist at Brown Brothers Harriman, said, "The rate cut bet on the federal funds rate seems a bit excessive, leaving room for a repricing of the dollar in the short term," noting resilient growth and core inflation staying above the Fed's 2% target. With the US market closed on Monday and no significant agenda until the release of the Fed meeting minutes and personal consumption expenditure (PCE) data on Friday, investors have room to adjust their positions in the absence of clear macro catalysts. According to currency traders familiar with the trading situation, hedge funds have been actively cutting their short positions on the dollar on Tuesday. These traders, who requested anonymity as they are not authorized to discuss the matter publicly. Danish bank analysts, including Chief Forex Analyst Jens Navvig Pedersen, wrote that the stronger-than-expected January jobs report weakened the reasons for further "insurance rate cuts" in the spring. They still expect the Fed to cut rates in June and September, then maintain rates in the range of 3.00%-3.25% until 2027. As a new round of US-Iran nuclear talks approaches, geopolitical risks once again become a focus of attention.