The U.S. dollar is gaining strength ahead of important central bank meetings this week, approaching a three-week high against major currencies. Analysts expect the Federal Reserve to announce a quarter-point rate cut with a 97% likelihood during its upcoming meeting. This rise in the dollar comes despite recent economic indicators suggesting a shift in the Fed’s narrative on inflation and the job Market. Meanwhile, the Japanese yen continues to struggle, and the euro fluctuates following political developments in Germany. The British pound also saw gains after a recent dip, as the Bank of England prepares for its policy decision. Overall, the dollar’s strength is supported by various global monetary policies.
By Chibuike Oguh and Greta Rosen Fondahn
NEW YORK/GDANSK (Reuters) – On Monday, the U.S. dollar continued to gain strength, reaching near a three-week high against major currencies. Investors are closely monitoring the upcoming Federal Reserve meeting, along with other significant central bank gatherings this week, for insights into potential interest rate changes in 2025.
Market sentiment is leaning towards a quarter-point rate reduction by the Fed at its policy meeting on Wednesday, with almost 97% confidence in such a move, as indicated by CME’s FedWatch tool. Meanwhile, the yield on benchmark U.S. 10-year notes slipped slightly, down 1.2 basis points to 4.387%.
Eugene Epstein, head of structuring for North America at Moneycorp, noted, “The debate isn’t whether the Fed will cut rates; it’s more about the outlook for the future.” He highlighted that the dollar’s robust performance since late September reflects mixed economic indicators that challenge the Fed’s narrative of easing inflation and a softening job Market.
The dollar rose 0.7% against the Swiss franc, reaching 0.89320, its highest level since July. Against the Japanese yen, it climbed 0.43% to 154.28, marking its first rise above 154.480 since November 26. The yen has struggled to recover after experiencing its largest weekly decline since September. This decline came on reports suggesting that the Bank of Japan is likely to maintain steady interest rates during its meeting on Thursday.
The euro experienced a temporary rally following German Chancellor Olaf Scholz’s parliamentary confidence vote loss, which may lead to snap elections in February. Despite initial gains, the euro was down 0.06% at $1.0496 later in the day.
In terms of business activity, a survey indicated that the decline in eurozone activity has moderated this month. Meanwhile, European Central Bank President Christine Lagarde stated that further interest rate cuts could occur if inflation continues to decline towards the ECB’s 2% target.
The U.S. Dollar Index, which measures the dollar against six major currencies, was up 0.08% at 106.95, after reaching as high as 107.16 during the session. Sterling also gained, increasing 0.70% to $1.26970, rebounding from a recent low prompted by surprising economic contraction data from the UK.
A UK business activity survey indicated rising prices, with the Bank of England set to make a policy decision shortly after the Bank of Japan meets. Epstein remarked, “The dollar’s strength stems not only from the Fed’s position but also from major central banks adopting diverging strategies.”
In a related development, Bitcoin hit a record high, surpassing $106,000, following comments from President-elect Donald Trump about possibly establishing a U.S. bitcoin strategic reserve. This move sparked interest among crypto enthusiasts, leading Bitcoin to rise as much as 5.23% to $106,645.00. Trump’s remarks echo previous statements from his presidential campaign, highlighting a favorable outlook for the crypto Market.
What are dollar advances against major peers?
Dollar advances against major peers refer to the strengthening of the US dollar when compared to other currencies like the euro or yen. This often happens when investors feel more confident in the US economy.
Why is the Market awaiting the Fed’s decision?
The Market is waiting for decisions from the Federal Reserve because they heavily influence interest rates and economic policy. Any changes announced can affect how investors react in the currency and stock markets.
What impact does a stronger dollar have?
A stronger dollar can make US exports more expensive for foreign buyers, which might lower demand. It can also affect the profits of American companies doing business internationally.
Why is bitcoin hitting new highs important?
Bitcoin hitting new highs shows increasing interest and confidence in cryptocurrencies. It can attract more investors and can change how people view digital currencies compared to traditional money.
How do these trends affect everyday consumers?
These trends can affect consumers by altering prices for goods and services. For example, a stronger dollar can mean cheaper imports, while high bitcoin prices might influence investment options and financial technology developments.
