The U.S. dollar remained steady on Wednesday as investors awaited the Federal Reserve’s upcoming decision, speculating whether it might take a hawkish approach to a rate cut amid a week of major central bank meetings. This anticipation pressured the Australian and New Zealand dollars to new lows.
The Fed is widely expected to announce a 25-basis-point rate cut at the conclusion of its two-day policy meeting, with markets assigning a 97% probability, according to the CME FedWatch tool. Attention will turn to the Fed’s updated economic projections for 2025, particularly how much further policymakers expect to reduce rates in the coming year.
Tuesday’s data highlighted the strength of the U.S. economy, with retail sales surpassing expectations, rising 0.7% in November due to robust vehicle and online purchases. Investors are also assessing the potential impact of proposed tariffs and tax cuts by the incoming Trump administration on the Fed’s outlook.
“The USD and yields have held firm on the belief that the Fed will scale back easing significantly next year. If the Fed only revises rate forecasts down to two cuts in 2025, the dollar could weaken,” said Matt Simpson, senior market analyst at City Index. The current dot plot predicts four 25-basis-point cuts in 2025.
The U.S. dollar index, which tracks the greenback against six major currencies, was little changed at 106.9, after reaching a high of 107.18 on Monday—its strongest level since November 26. Strong U.S. economic data has continued to attract investor focus, contributing to the Australian and New Zealand dollars’ declines.
The Australian dollar fell to $0.6310, its weakest point since October 2023, before recovering slightly to $0.6312, down 0.4%. The New Zealand dollar hit a fresh two-year low of $0.5310.
Against the yen, the dollar edged down 0.07% to 153.36, retreating from recent gains as U.S. Treasury yields slipped ahead of the Fed’s decision. Meanwhile, market expectations for a Bank of Japan rate hike on Thursday have shifted to a likely January move after cautious signals from recent media reports.
“If the BOJ refrains from a hike as expected, Governor Ueda will still signal future rate increases, which may support the yen,” noted Kieran Williams, head of Asia FX at InTouch Capital Markets. Japan’s exports showed a second consecutive month of growth in November.
The Bank of England is also anticipated to hold rates steady on Thursday. Expectations for rate cuts next year eased after data revealed stronger-than-expected wage growth in the UK. Sterling traded at $1.27005, down 0.08%, as markets awaited November CPI data due later in the day.
The euro rose 0.1% to $1.0502. Among other central banks meeting this week, Sweden’s Riksbank is expected to cut rates by up to 50 basis points, while Norway’s Norges Bank is likely to keep rates unchanged. The Swedish krona hovered at 10.9486 per dollar, while the Norwegian krone was steady at 11.1930.
In Asia, the offshore yuan held near a 13-month low at 7.2905 per dollar as expectations for Chinese economic growth remained subdued.
In cryptocurrency markets, bitcoin dropped 2.41% to $103,853, retreating from a high of $108,379.28 reached in the previous session.
