Published by Uma Rajagopal
Posted on December 18, 2024
By Brigid Riley
TOKYO (Reuters) – The U.S. dollar held firm on Wednesday as investors waited to see whether the Federal Reserve will deliver a hawkish cut ahead of other major central bank meetings this week, pushing the Australian and New Zealand dollars to fresh lows.
The Fed is widely expected to deliver a 25-basis-point interest rate cut at the end of its two-day policy meeting on Wednesday, with markets pricing in a 97% probability, according to the CME’s FedWatch tool.
Focus will fall on policymakers’ new economic projections for 2025 to be released alongside the decision, namely how much further Fed officials think they will reduce rates next year.
Data on Tuesday yet again showed a resilient U.S. economy after retail sales beat expectations by jumping 0.7% in November, backed by an uptick in motor vehicle and online purchases.
Investors are also weighing the possible impact of promised tariffs and tax cuts by the incoming Trump administration on the Fed’s outlook.
“The USD and yields have been propped up on the assumption that the Fed will drastically reduce their level of easing next year, so we might find the dollar weakens if they ‘only’ revise (interest rate forecasts) down to two cuts in 2025,” said Matt Simpson, a senior market analyst at City Index.
The current dot plot projects the Fed to deliver four 25 bp cuts next year.
The U.S. dollar index, which measures the greenback against six rivals, was little changed at 106.9 after hitting its highest since Nov. 26 at 107.18 on Monday.
More upbeat economic news out of the U.S. focused investors’ attention on the U.S. dollar, sending the Aussie and kiwi down.
The Australian dollar slid to $0.6310, its lowest since October 2023. It was last down 0.4% at $0.6312.
The kiwi touched a fresh two-year low of $0.5310.
Against the yen, the dollar was down 0.07% at 153.36, having given up some of its recent gains in the previous session as U.S. Treasury yields fell ahead of the Fed’s decision. [US/]
Markets have significantly reduced bets that the Bank of Japan will raise rates on Thursday in favour of a January hike, following a slew of media reports indicating the central bank may take a cautious stance.
“If the BOJ eschew a rate hike, as expected, then (BOJ Governor Kazuo) Ueda will still telegraph rate hikes down the line. This will help support the yen but is likely not far from the truth,” said Kieran Williams, head of Asia FX at InTouch Capital Markets.
Japan’s exports rose for a second straight month in November, data showed on Wednesday.
The Bank of England is also expected to hold rates steady on Thursday. Investors further reined in bets on cuts next year after data on Tuesday showed British wage growth picked up more than expected.
Sterling fetched $1.27005, down 0.08% ahead of CPI figures for November to be released later in the day.
The euro sat at $1.0502, up 0.1%.
Among other central banks meeting this week, Sweden’s Riksbank is widely expected to cut rates by as much as half a point, while the Norges Bank is set to leave rates unchanged.
The Swedish crown held at around 10.9486. The Norwegian krone was flat at 11.1930 against the greenback.
The offshore yuan traded at 7.2905 per dollar on Tuesday, holding steady near a 13-month low against the dollar amid dour expectations for Chinese economic growth.
In cryptocurrencies, bitcoin was last down 2.41% to $103,853 after hitting a high of $108,379.28 in the previous session.
(Reporting by Brigid Riley; Editing by Sam Holmes and Nicholas Yong)
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