Dec 18 2024: The U.S. dollar remained stable against the yen and other major currencies on Wednesday, as markets awaited the Federal Reserve’s interest rate decision and updated economic projections. The focus is on whether the Fed will signal a more cautious approach to rate cuts, ahead of policy meetings from the Bank of Japan (BOJ) and other central banks later this week.
The Fed is widely expected to implement a 25-basis-point rate cut at the conclusion of its two-day meeting, with market odds at 97%, according to the CME FedWatch tool. However, the accompanying projections for 2025 will likely dominate attention, particularly regarding the anticipated pace of further rate reductions.
Recent robust U.S. economic data, including a stronger-than-expected 0.7% rise in November retail sales, may prompt the Fed to revise its outlook. Analysts suggest the Fed could project three rate cuts in 2025 instead of the previously expected four, with some speculating an even more hawkish stance of just two cuts might emerge.
The U.S. dollar index, which tracks the greenback against six major currencies, was slightly lower at 106.89, after hitting a three-week high of 107.18 earlier in the week. Against the yen, the dollar edged up 0.12% to 153.65, despite a retreat in U.S. Treasury yields ahead of the Fed’s announcement.
Central Banks in Focus
Markets have tempered expectations for a BOJ rate hike on Thursday, with some analysts now eyeing January as a more likely timeline following cautious signals from Japanese officials. November trade data showed Japan’s exports grew for a second consecutive month, adding some support to the yen.
The Bank of England (BOE) is also expected to keep interest rates steady on Thursday. However, stronger-than-expected wage growth in the U.K. has led markets to scale back expectations for rate cuts in 2024. Sterling was little changed at $1.27095 as traders awaited November CPI data.
The euro saw modest gains, trading at $1.0502, up 0.09%.
Among Nordic currencies, Sweden’s Riksbank is anticipated to cut rates by up to half a percentage point, while Norway’s Norges Bank is likely to hold rates steady. The Swedish crown hovered at 10.9469 per dollar, while the Norwegian krone was at 11.1793.
Asian and Commodity Currencies
The offshore yuan traded near a 13-month low at 7.2885 per dollar, reflecting continued concerns over China’s economic slowdown. The Australian dollar, often seen as a proxy for the yuan, dipped 0.17% to $0.6326, its lowest level since November 2023. The New Zealand dollar (kiwi) edged up 0.04% to $0.57565.
Cryptocurrencies
Bitcoin fell 0.54% to $105,836.57, retreating from its recent peak of $108,379.28 reached in the prior session. The decline comes as traders reassess positions ahead of the Fed decision.
