Dollar is at a one-month high as interest rate cut expectations decline

The dollar index remained at its highest level in a month against a basket of currencies on Wednesday, as remarks from Christopher Waller, a member of the Federal Reserve Board of Governors, tempered expectations of an interest rate cut in March.

Waller stated on Tuesday that, while the United States is “close to” the central bank’s 2 percent inflation target, the bank should not hastily cut its benchmark interest rate until it becomes evident that low inflation will persist.

Market expectations for an interest rate cut in March diminished to a probability of 62.2 percent, compared to 76.9 percent in the previous session, according to the CME Fed Watch tool.

The dollar index, gauging the performance of the US currency against a basket of major currencies, reached 103.35 points after reaching 103.42 points in the previous session, marking its highest level since December 13. Tuesday witnessed the most significant one-day percentage increase for the dollar since January 2.

Meanwhile, the euro hovered near a one-month low of $1.0875 following its most substantial one-day drop in two weeks. This decline followed comments from several European Central Bank policymakers this week, contributing to uncertainty over the timing of interest rate cuts.

The pound traded largely unchanged at $1.2636 after a significant drop on Tuesday, prompted by data revealing that British wage growth slowed in the three months to November.

The Japanese yen faced renewed pressure, reaching its lowest level since early December at 147.45 per dollar, influenced by the support the US currency received from the increase in US bond yields.