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The U.S. dollar maintained its strength on Wednesday as investors braced for the Federal Reserve’s highly anticipated policy decision. The central bank is expected to implement a “hawkish cut,” reducing interest rates by 25 basis points while signaling a more restrained approach to easing in 2025. Markets are keen to decipher how much further the Fed might reduce rates next year, with the dot plot projecting four 25-basis-point cuts for 2024.
The U.S. dollar index, which tracks the greenback against a basket of six major currencies, edged up 0.05% to 106.98, after reaching its highest level since late November earlier in the week. Resilient U.S. economic data has been a key factor supporting the dollar’s momentum. Tuesday’s retail sales figures surpassed expectations, reinforcing confidence in the economy despite uncertainties tied to the incoming Trump administration’s proposed tariffs and tax cuts.
The dollar’s strength weighed heavily on commodity-linked currencies such as the Australian and New Zealand dollars. The Australian dollar slid to $0.6310, marking its lowest level since October 2023, before recovering slightly to $0.6313. Similarly, the New Zealand dollar hit a two-year low of $0.5731 as concerns over China’s sluggish economic growth persisted, given its critical role as Australia and New Zealand’s largest trading partner.
Meanwhile, the offshore yuan held steady at 7.2905 per dollar, lingering near a 13-month low as China’s economic challenges continued to pressure its currency.
In contrast, the greenback eased slightly against the yen, trading down 0.07% at 152.16. This comes as U.S. Treasury yields softened, and expectations for a Bank of Japan rate hike shifted to January following cautious signals from the central bank. Japan’s exports rose for a second consecutive month in November, further stabilizing the yen’s performance.
In Europe, the British pound weakened against both the euro and the dollar following an inflation report that showed an eight-month high. Sterling fell 0.19% to $1.2687, while the euro advanced 0.2% to 82.70 pence. The euro also traded at $1.0495, supported by steady sentiment ahead of the European Central Bank’s upcoming decisions.
Among other currencies, Sweden’s krona faced pressure as the Riksbank is expected to implement a substantial rate cut of 50 basis points, while Norway’s Norges Bank is set to hold rates steady.
In the cryptocurrency market, bitcoin experienced a pullback, dropping 2.3% to $103,959 after surging to a high of $108,379.28 in the previous session. Despite the dip, the digital asset remains in focus amid heightened market volatility.
As global markets await key central bank decisions this week, the U.S. dollar continues to dominate, reflecting the diverging economic trajectories and monetary policy outlooks of major economies.
