Dollar advances against peers ahead of Fed rate decision

12:28 pm Wednesday, December 18th, 2024

By Chibuike Oguh and Stefano Rebaudo

NEW YORK (Reuters) – The U.S. dollar advanced against its peers on Wednesday ahead of the Federal Reserve’s monetary policy decision later in the session, with markets expecting the central bank to deliver its third consecutive interest rate cut.

The Fed will likely lower its benchmark policy rate by 25 basis points to the 4.25% to 4.50% range and officials are expected to also signal a pause in rate cuts next year. The futures market currently implies a nearly 97% chance of a cut, according to the CME’s FedWatch tool.

The Fed will release its policy statement and updated economic projections at 2 p.m. EST (1900 GMT), with Chair Jerome Powell scheduled to hold a press conference half an hour later.

“My own sense would be to expect the Fed to have a hawkish cut, meaning that they cut rates but the dot plot shows fewer cuts than they said in September,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.

“Powell will also repeat what he said before that the economy is growing stronger than expected but dampen the idea. So through the dot plot and his word cues, I think the market takes away from it that the Fed is not going to be as aggressive next year as they anticipated.”

The dollar strengthened 0.04% to 0.89285 against the Swiss franc in choppy trading. The euro was down 0.16% at $1.0474.

The U.S. dollar index, which measures the greenback against six rivals, was up 0.19% at 107.13, after hovering near a three-week high.

The dollar strengthened 0.39% to 154.055 against the Japanese yen, with markets cutting bets that the Bank of Japan will raise rates on Thursday in favour of a January hike following media reports.

The Bank of England is also expected to hold rates steady on Thursday. Sterling edged higher versus the euro but dropped against the dollar as investors look at the Fed policy meeting and after British inflation data was in line with expectations. The currency weakened 0.1% to $1.2699.

Sweden’s Riksbank is widely expected to cut rates by as much as half a point, while the Norges Bank is set to leave rates unchanged. The Norwegian crown dropped 0.43% to $11.2422, while the Swedish crown weakened 0.12% versus the dollar to 10.9705.

Dour expectations for Chinese economic growth sent the Aussie and New Zealand’s kiwi down. China is Australia’s largest two-way trading partner.

The Australian dollar slid to $0.63055, its lowest since October 2023. It was last down 0.35% at $0.6314. The kiwi touched a fresh two-year low of $0.57205.

The offshore yuan traded at 7.296 per dollar on Tuesday, holding steady near a 13-month low against the dollar.

Bitcoin retreated from recent highs. The world’s largest cryptocurrency fell 2.06% to $104,227.

(Reporting by Chibuike Oguh in New York and Stefano Rebaudo; editing by Nicholas Yong, Peter Graff, Angus MacSwan and Jonathan Oatis)