The U.S. Dollar Eases Against Euro as Fed Rate Cut Outlook Weighs
Dollar Weakens Against Euro
The U.S. dollar eased against the euro on Monday, extending last week’s fall. The U.S. currency remains under pressure from the Federal Reserve indicating the possibility of interest rate cuts next year.
Bank of Japan Meeting
The dollar was higher against the yen as the Bank of Japan (BOJ) kicked off a two-day meeting that could be crucial in determining the timing of the end of the central bank’s ultra-loose stance on interest rates.
Fed’s Interest Rate Cut Outlook
Bets that the Fed will lower its benchmark overnight interest rate at its March meeting by a quarter of a percentage point soared last week after the U.S. central bank left its policy rate unchanged in the 5.25%-5.50% range. Officials forecast three-quarters of a percentage point in cuts next year.
European Central Bank’s Stance
Meanwhile, European Central Bank policymakers do not expect to change their message on the need for high interest rates before their March meeting, making any rate cut before June difficult, according to sources.
Market Analyst’s Perspective
“The Fed, having failed to push back on the aggressive dovish repricing we’ve seen over the last six weeks or so, has given license for financial conditions to loosen further,” said Michael Brown, market analyst at Trader X in London.
Fed’s Stance on Rate Cuts
The Federal Reserve is not pre-committing to cutting interest rates soon and swiftly, and the jump in market expectations that it will do so is at odds with how the U.S. central bank functions, according to Chicago Fed President Austan Goolsbee.
Market Sentiment and Currency Movement
The dollar, which measures the currency’s strength against a basket of six rivals, was 0.04% lower at 102.58. The euro was 0.2% higher against the dollar. The yen retreated on Monday, but held near its recent highs, as the Bank of Japan (BOJ) kicked off a two-day meeting that could be crucial in determining the timing of the end of the central bank’s ultra-loose stance on interest rates.
Bank of Japan’s Rate Decision
The Japanese currency has had a volatile few weeks, and investors now await Tuesday’s BOJ decision for further clarity on the bank’s rate outlook.
Impact on Australian and New Zealand Dollars
Elsewhere, the Australian and New Zealand dollars, which can often act as barometers for investor risk appetite in the currency market, traded about flat on the day but remained near their respective 5-month highs against the U.S. currency.
Pound’s Movement
The pound was 0.26% lower against the dollar at $1.26465, as the prospect of interest rates remaining higher in Britain than in most other major economies next year offered some support to the British currency.
Cryptocurrency Market
The cryptocurrency market was about flat on the day at $41,384.
