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More disappointment is in store for investors hoping for a string of U.S. interest rate cuts to boost equity markets and send the Dollar lower.

According to Nordea Bank - one of Scandinavia's biggest lenders and investment banks - the Federal Reserve "can no longer be certain the job is done".

A string of stronger inflation and activity data suggests the Federal Reserve "can no longer be sure inflation is on a fast track to 2%," according to Lars Mouland, Chief Credit and Rates Strategist at Nordea.

The Dollar rose sharply on Tuesday after U.S. inflation surprised to the upside and analysts pointed out that there was evidence of broad-based inflationary pressures rebuilding in the price basket.

"We now expect the first 25bp rate cut in September, followed by another in December and March 2025," says Mouland.

Above:"US activity data have increased markedly after a soft patch coming into the December FOMC meeting" - Nordea.

Markets are currently fully priced for the first Fed rate cut from the Fed to fall in June, whereas at the start of the year, the first cut was priced for March.

The steady retreat in expectations from March to June has been accompanied by higher U.S. bond yields and a stronger Dollar.

As such, should Nordea be correct and this repricing must fall back to September, there is further Dollar strength in store.

Equity markets have nevertheless weathered the repricing in expectations, but this could change in the coming weeks as it becomes clear financial conditions must tighten as lending rates increase.

"As rate cut expectations wane, higher interest costs will tighten financial conditions. In combination with a slew of geo(political) risks, we should then see a more cautious approach to investment, hiring and spending which will help deliver a lower price pressure," says Mouland.

He says that by leaving monetary policy slightly on the tight side by lowering rates by only 75bp, the Fed will help balance an economy operating above potential with near full employment and strong public spending.