The U.S. dollar held steady against the yen and other major rivals on Wednesday as investors waited to see whether the Federal Reserve would make an aggressive rate cut before the Bank of Japan and other central banks meet this week.
The Fed is widely expected to make a 25 basis point rate cut at the end of its two-day policy meeting on Wednesday, with markets pricing in a 97% probability, according to the CME’s FedWatch tool.
The focus will be on policymakers’ new economic projections for the coming year that will be released along with the decision, namely how much further Fed officials think they will cut rates in 2025.
Given the set of robust inflation and activity data, the Fed could signal a slower pace going forward and revise its projections to indicate three cuts in 2025 instead of the current four, Tony Sycamore, market analyst at IG, wrote in a note to customers.
“If the median showed only two cuts, this could be considered more aggressive, (although) it would be in line with current rates market prices,” he said.
Data on Tuesday showed a resilient US economy after retail sales beat expectations by rising 0.7% in November, supported by a rebound in auto and online purchases.
Investors are also weighing the potential impact of promised tariffs and tax cuts by the new Trump administration on the Fed’s prospects.
The US dollar index, which measures the greenback against six rivals, was little changed, falling 0.04% to 106.89 after hitting its highest since November 26 at 107.18 on Monday.
Against the yen, the dollar rose 0.12% to 153.65, having given up some of its recent gains in the previous session as US Treasury yields fell ahead of the Fed’s decision. [US/]
Markets have significantly lowered expectations that the Bank of Japan (BOJ) will raise rates on Thursday in favor of a January rate hike, following a slew of media reports indicating the bank could take a cautious stance.
Japan’s exports rose for the second month in a row in November, data showed on Wednesday.
The Bank of England is also expected to keep interest rates steady on Thursday. Investors further curbed their bets on spending cuts next year after data on Tuesday showed British wage growth picked up more than expected.
Sterling was virtually flat at $1.27095, higher than the November CPI figures, which will be released later in the day.
The euro traded at $1.0502, up 0.09%.
Among the other central banks meeting this week, Sweden’s Riksbank is seen cutting rates by as much as half a point, while Norges Bank is likely to leave rates unchanged.
The Swedish krona stood at 10.9469. The Norwegian krone fluctuated around 11.1793 against the dollar.
Elsewhere, the offshore yuan traded at 7.2885 per dollar, not far from a 13-month low against the dollar on Tuesday, amid gloomy expectations for Chinese economic growth.
The Australian dollar, which usually serves as a liquid proxy for the yuan, fell 0.17% to $0.6326 against the greenback, its lowest level since November 2023.
The kiwi yielded $0.57565, up 0.04%.
In cryptocurrencies, Bitcoin fell 0.54% to $105,836.57 after reaching a high of $108,379.28 in the previous session.
