Impact of Fed Statement on Dollar and Global Currencies
Dollar Hits Four-Month Low After Fed Indication
The dollar fell to a fresh four-month low as the Federal Reserve signaled the end of its interest-rate hike cycle and hinted at lower borrowing costs coming in 2024. Fed Chair Jerome Powell stated that the historic tightening of monetary policy is likely over, with a discussion of cuts in borrowing costs coming “into view”. The news had a significant impact on the markets, with the dollar slipping to its lowest level since mid-August.
European Central Bank and Norwegian Rate Hike
On a busy day for policy announcements in Europe, the Norwegian crown strengthened after a rate hike, while the Swiss franc remained little changed after the Swiss National Bank held rates. Both the Bank of England and European Central Bank were set to announce their policies later in the day, adding to the overall market anticipation.
Market Reaction and Projections
Markets are now pricing in more than an 85% chance of a rate cut in March, a significant increase from the previous 40%. Traders are also factoring in a one-in-five chance that the Fed will cut rates next month, further reflecting the impact of the Fed’s indication on market expectations.
Global Central Bank Announcements
The SNB held rates steady at 1.75%, as expected, while the Norwegian crown rose after the Norges Bank unexpectedly raised rates by 25 basis points to 4.5%. Eyes were now turning to announcements from the BoE and ECB, with markets watching for communication around possible easing of policy in 2024.
Yen Strengthens and Australian Dollar Surges
The yen continued to strengthen in the wake of the greenback’s tumble, reaching its highest level since July 31 at 140.95 yen per dollar. Meanwhile, the Australian dollar hit over a four-month high after domestic net employment jumped by 61,500 in November, well above market forecasts.
Cryptocurrency and Other Currencies
In cryptocurrencies, bitcoin was down 0.3% at $42,772. The Australian dollar rose over 1% versus the greenback to as high as $0.6728, despite data showing the New Zealand economy unexpectedly contracted in the third quarter.
