**U.S. Dollar Maintains Strength Amid Anticipation of Fed Rate Cut and Global Central Bank Meetings**
*By Brigid Riley*
Tokyo (Reuters) – The U.S. dollar exhibited resilience on Wednesday as traders positioned themselves ahead of the Federal Reserve’s anticipated interest rate decision, while the currencies of Australia and New Zealand faced downward pressure, hitting recent lows.
Market expectations heavily favor a 25-basis-point rate cut from the Fed following its two-day policy meeting, with the CME’s FedWatch tool indicating a 97% probability of such a move. This expected reduction will be closely scrutinized, particularly the Fed’s economic projections for 2025, which could reveal insights into future rate adjustments.
Recent economic data has demonstrated the continued strength of the U.S. economy, with November retail sales surpassing forecasts by increasing 0.7%, buoyed by higher motor vehicle and online sales. As investors analyze the potential implications of policy changes promised by the incoming Trump administration, including tariffs and tax reforms, caution prevails regarding the Fed’s long-term outlook.
Matt Simpson, senior market analyst at City Index, cautions that if the Fed only hints at two cuts for 2025 instead of the projected four, the dollar may lose some of its current strength. The dollar index, which assesses the U.S. currency against six major counterparts, remained stable at 106.9, slightly down from a recent peak at 107.18.
Economic optimism in the U.S. has reinforced confidence in the dollar, resulting in a decline for the Australian dollar, which touched $0.6310, its lowest level since October 2023, trading down 0.4% at $0.6312. The New Zealand dollar also fell to a two-year low of $0.5310 during the session.
Conversely, the dollar dipped 0.07% against the yen, settling at 153.36 after recent gains were curbed by falling U.S. Treasury yields in advance of the Fed’s decision. Furthermore, expectations for the Bank of Japan (BOJ) to take a cautious approach have led to a decrease in speculations of an imminent rate hike, with many now looking towards a potential January increase instead.
Kieran Williams, head of Asia FX at InTouch Capital Markets, suggests that while the BOJ may hold rates steady, Governor Kazuo Ueda is likely to signal future rate hikes, which could lend some support to the yen. Recent data indicated that Japanese exports had increased for the second consecutive month in November.
The Bank of England is also expected to maintain its current interest rates on Thursday, with traders moderating expectations for rate cuts following better-than-anticipated wage growth data. The British pound was trading at approximately $1.27005, down 0.08%, with consumer price index figures for November scheduled for release later in the day. The euro was slightly higher at $1.0502, up 0.1%.
Additional central bank meetings this week include Sweden’s Riksbank, which is predicted to cut rates by up to half a point, while Norway’s Norges Bank is expected to keep rates unchanged. The Swedish crown remained stable at around 10.9486, with the Norwegian krone also languishing around 11.1930 against the greenback.
In China, the offshore yuan traded at 7.2905 per dollar, hovering near a 13-month low amid ongoing concerns surrounding the country’s economic growth.
In the cryptocurrency market, Bitcoin was down 2.41% to $103,853 after reaching a high of $108,379.28 in the previous session.
As traders prepare for a flurry of central bank announcements this week, the overall sentiment remains one of caution. The anticipated Fed rate cut will likely shape market movements and influence forex strategies in the coming weeks.
Image from AP via Free Malaysia Today, licensed under CC BY 4.0.
