Stefano Rebaudo
(Reuters) – The U.S. dollar held steady on Wednesday ahead of a Federal Reserve policy meeting later in the session that is expected to deliver a hawkish cut, lowering interest rates but suggesting less monetary easing in the future.
Analysts recalled that the assumption that the Fed would reduce monetary easing in 2025 had recently strengthened the dollar, while markets continued to price in a 25 basis point rate cut.
“We anticipate a hawkish change in the scatter chart, consistent with changes in market expectations since the last update in September,” said David Doyle, Macquarie’s chief economics officer.
“Chairman Powell is likely to highlight the slower pace of monetary easing going forward, the uncertainty around the neutral interest rate, and the data dependence of the policy outlook,” he argued, adding that beyond this meeting he sees only one 25-basis-point cut in 2025.
The dollar, which measures the greenback against six rivals, was up 0.05% at 106.97, after hitting its highest level since Nov. 26 at 107.18 on Monday.
“We think they will hold off (interest rate cuts in January),” said Padhraic Garvey, regional research director for the Americas at ING.
“It is unlikely that they have clearly communicated this intention.”
Tuesday’s data once again showed a resilient U.S. economy after retail sales beat expectations, but investors are also considering the possible impact of promised tariffs and tax cuts by the recent Trump administration.
If the target range for federal funds rates is cut by 25 basis points, “it should be viewed as a technical fix rather than a monetary policy decision,” said Philip Marey, senior U.S. strategy specialist at RaboBank, who expects one rate cut of 25 points base next year 2025.
“They (the Fed) will have to stop much earlier and at a higher level than they currently expect. They may even be forced to start hiking again if inflation gets out of control,” he added, mentioning expected US tariffs.
The current scatterplot projects that the Fed will make four 25-basis-point rate cuts next year.
The euro reached $1.0495.
More upbeat U.S. economic news amid gloomy growth expectations in China led to declines. China is Australia’s largest bilateral trading partner.
The Australian dollar fell to $0.6310, the lowest level since October 2023. It was last down 0.35% at $0.6313.
The kiwi hit a fresh two-year low of $0.5731.
On Tuesday, the rate was 7.2945 per dollar, holding steady near a 13-month low against the dollar.
Against the yen, the dollar fell 0.16% to 153.7, after giving up some of its recent gains in the previous session as U.S. Treasury yields fell. [US/]
Following multiple media reports, markets have reduced bets that the Bank of Japan will raise interest rates on Thursday in favor of a January hike, but expect the BoJ to provide some confident interest rate forecasts.
“The relative lack of urgency from the BoJ to set a date for the next rate hike can also be attributed to the current forex market situation,” said Izumi Devalier, Japan and Asia economist at BofA Japan.
“The BOJ’s decision to raise in July was partly due to concerns about the acute weakening of the yen and a renewed boost in inflation risks.”
On Wednesday, data showed Japanese exports rose for a second straight month in November.
The Bank of England is expected to keep interest rates unchanged on Thursday. The pound sterling fell against the euro and dollar as investors awaited the Fed’s policy meeting and after UK inflation data was in line with expectations.
Among other central banks meeting this week, Sweden’s Riksbank is widely expected to cut interest rates by as much as half a point, while Norges Bank will leave interest rates unchanged.
The Norwegian krone fell 0.30% to $11.2279. In May 2023, it reached $11.30, the lowest level since March 2020.
In cryptocurrencies, bitcoin was last down 1.2% at $105,184 after hitting a high of $108,379.28 in the previous session.
