Traders are also pricing in a 25 basis point cut by the Fed ahead of a more moderate monetary policy easing in 2025.
He global dollar strengthened against major currencies on Tuesday following better-than-expected retail sales data that showed underlying economic momentum, as markets brace for imminent U.S. interest rate moves. Federal Reserve (Fed) and other central banks.
He dollar indexwhich tracks the behavior of this currency against six others, rose 0.1% to 106.91, after having traded as high as 107.08 in the session.
For its part, the Fed will announce its interest rate decision on Wednesday and interest rate futures imply a 94% chance of a cut, even as service sector activity hit a three-year high, according to a survey of purchasing managers of S&P Global. In that sense, the indicator GDPNow of the Fed of atlanta stands at 3.3% for the fourth quarter, and the strength of the economy has been lifting yields and supporting the dollar, as traders estimate that the neutral level for rates may be higher than initially thought.
“We hope that the Fed show more caution about the future path of rate cuts. Therefore, 25 basis points is a fait accompli this week, but the key question is, obviously, what will happen next year,” the currency strategist of MUFG, Lee Hardman. “We believe there is a greater likelihood that we will see the Fed skip the next meeting in January to leave rates unchanged,” he added.
The elected president of the United States, Donald Trump, takes office in January, and has already promised a series of measures to impose duty to imports from countries such as China, Canada and Mexico, as well as the deportation of millions of undocumented immigrants, which could contribute to a sustained rebound in inflation and prevent the Federal Reserve cut rates deeper.
Central bank officials’ median long-term interest rate projection was 2.9% in September. Right now, market pricing means there is almost no chance that rates will be that low by December of next year and there is only a 30% chance that the fed funds rate will fall below 3.75%. by the end of 2025.
He euroon the other hand, is headed for a drop of almost 5% against the dollar this year, and was down 0.16% this Tuesday at $1.04950. In turn, the pound sterling rose 0.18% to $1.2704 after data showed British wage growth picked up more than expected in the three months to October. The Bank of England will announce its rate decision on Thursday.
He yen also strengthened 0.46% against the dollar (to 153.45 per dollar), as markets reduced the chances of a rate increase by the Bank of Japan this week and they did it in January.
Source: Ambito
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