U.S. Dollar Edges Higher Amid Fed’s Rate Cut Signals
U.S. Dollar Edges Higher
The U.S. dollar edged higher in early European trade Friday, despite being on track for its steepest weekly decline since July. This comes after the Federal Reserve indicated potential rate cuts next year, while central banks in Europe maintained their hawkish approach.
Fed’s Dovish Pivot Hits the Dollar
The Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher at 101.702 at 04:15 ET (09:15 GMT). This was not far from the four-month low of 101.459 seen earlier Friday. The index has experienced a 2% decline this week.
Euro, Sterling Fall Back
The euro fell 0.3% to 1.0953, just below 1.1009, a two-week high it reached on Thursday. Meanwhile, the pound fell 0.2% to 1.2747, with sterling having surged 1.1% to a four-month peak on Thursday after the Bank of England’s hawkish stance.
Yen Steadies Ahead of BOJ Meeting
In Asia, the yen traded 0.1% lower to 141.75, with the Japanese currency stabilized near a four-month high against the dollar. However, further yen gains were uncertain, with the Bank of Japan expected to maintain its ultra-dovish stance in its final meeting for the year next week.
Investors are keeping a close eye on U.S. economic data, including November retail sales and industrial production, as well as S&P 500 numbers. The market is also awaiting a speech by Fed policymaker Williams, as the debate shifts to the timing of the first rate cut.
The contrast between the Fed’s pivot towards rate cuts and the European central banks’ commitment to tight policy suggests that the dollar will remain out of favor as the year ends. This has prompted analysts at ING to conclude that European policymakers have chosen to push back more than the Fed in terms of what the market prices for 2024 rate cuts.
While the ECB’s next move is expected to be a lowering of interest rates from record highs, the central bank should “enjoy the view” for a while, according to French central bank chief Francois Villeroy de Galhau. On the other hand, the Bank of England’s statement offered no encouragement for dovish expectations for 2024.
China injected 1.45 trillion yuan ($200 billion) into its economy through its medium-term lending facility, while economic data showed that retail sales grew more than expected in November, although industrial production and fixed asset investment missed expectations.
Overall, the U.S. dollar’s performance continues to be influenced by central bank policies and economic indicators, setting the tone for the currency’s trajectory in the near future.
