The U.S. dollar traded within a tight range on Thursday, despite increased market bets that the Federal Reserve will cut interest rates next week. Meanwhile, the yen weakened following fresh reports suggesting the Bank of Japan might hold its current policy stance.
The Australian dollar saw a strong surge after domestic employment data exceeded expectations, highlighting a more robust labor market than anticipated. In contrast, the euro remained stable as investors awaited the European Central Bank’s monetary policy decision later in the day.
On Wednesday, the U.S. consumer price index aligned with forecasts, rising 0.3% in November—the largest increase since April—after holding steady at a 0.2% gain for four consecutive months.
According to the CME FedWatch tool, market expectations for a 25 basis point rate cut at the Fed’s December 17-18 meeting have risen to 98.6%, up from 78.1% just a week earlier. The upcoming U.S. producer price index release on Thursday could further solidify these expectations.
Carol Kong, a currency strategist at Commonwealth Bank of Australia, noted that the Fed’s rate trajectory beyond December remains uncertain due to sustained increases in core CPI over recent months.
“The U.S. dollar is likely to remain supported as concerns over a slowdown in disinflation drive market pricing for a slower pace of FOMC rate cuts next year,” she said.
Markets are also evaluating the potential impact of President-elect Donald Trump’s proposed tariff and tax cut policies, which could increase inflation and influence the Fed’s future outlook.An increase in U.S. Treasury yields provided support for the dollar.
The dollar index, which tracks the greenback against six major currencies, remained steady at 106.580 after reaching its highest level since November 27, at 106.81, on Wednesday.
Against the yen, the dollar edged up 0.17% to 152.72 yen, following a two-week high of 152.845 yen in the prior session as investors scaled back expectations for a rate hike in Japan next week.
According to a Thursday report from Reuters, the Bank of Japan (BOJ) is inclined to keep interest rates unchanged, opting to take more time to assess global risks and next year’s wage trends.
However, with markets anticipating a potential rate hike as soon as January, the shift hasn’t significantly driven investors to increase dollar positions against the yen, noted Akira Moroga, chief market strategist at Aozora Bank.
“Dollar-yen has been climbing from around 150 yen to near the 200-day moving average due to prior expectations for a December rate hike,” Moroga explained.
In Asia, traders awaited developments from China’s closed-door Central Economic Work Conference this week.
A Reuters report suggesting China might allow a weaker currency next year put pressure on the yuan, which traded at around 7.2673 per dollar, up 0.18% in offshore markets.
Meanwhile, the Australian dollar rose 0.77% to $0.6418, continuing its recovery from a more than one-year low of $0.63370 reached on Wednesday. The New Zealand dollar also strengthened, climbing 0.41% to $0.58075 after hitting its lowest level since November 2022, at $0.57625, in the previous session.The euro edged up 0.10% to trade at 1.0507 ahead of the European Central Bank’s monetary policy meeting later on Thursday, where a quarter-point rate cut is widely anticipated. Investors are closely watching for signals on the ECB’s future rate trajectory.
The British pound rose 0.12% to $1.2766.
The Swiss franc remained nearly unchanged at 0.88375 per dollar, as markets assessed the likelihood of a half-point rate cut by the Swiss National Bank, also scheduled for Thursday.
