The dollar is on track for its ninth consecutive decline, as traders increase bets on potential Federal Reserve rate cuts following recent US economic data and rising expectations for a more dovish stance from the central bank.
Federal Reserve Governor Christopher Waller indicated last week that the labor market shows enough weakness to justify a quarter-point rate cut in December. Additionally, White House economic adviser Kevin Hassett has emerged as a leading candidate to succeed current Fed Chair Jerome Powell, whose term continues through May 2026, according to US President Donald Trump, who plans to announce his choice early next year.
Kristina Hooper, chief market strategist at Man Group, noted that such an announcement could create a “shadow Fed chair,” complicating the Fed’s communication regarding monetary policy and potentially leading to confusion in the markets.
Market analyses show an 87% probability of a rate cut occurring this month, as reported by the CME Group’s FedWatch tool, a significant rise from 30% noted on November 19. With a December cut nearly fully priced in, investors are expected to closely monitor the Fed’s next moves, which indicate a total of 88 basis points in cuts by December 2026.
As of now, the dollar index, which measures the US dollar against six other currencies, declined by 0.15%, settling at 99.10, marking an almost 9% drop for the year.
Euro Gains Amid Ukraine Peace Talks
The euro appreciated by 0.11%, reaching $1.1639, as investors kept a close eye on the progress of peace negotiations in Ukraine, which could enhance energy security and reduce costs, thus supporting the euro.
However, negotiations between Russia and the US failed to yield a compromise on a peace agreement after a five-hour meeting between President Vladimir Putin and senior US envoys. Analysts have suggested that the euro could see further gains if a ceasefire or comprehensive peace agreement is reached, particularly with expectations of sustained elevated defense spending that supports the economy.
Inflation data from the eurozone slightly exceeded expectations on Tuesday, yet market anticipations for the European Central Bank’s policy rate remain unchanged, with no expected adjustments until early 2027.
Japanese Yen Close to Intervention Levels
The Japanese yen fell 0.13% to 155.69 against the dollar, following a previous rise. Bank of Japan Governor Kazuo Ueda has signaled a possible rate hike later this month. Nevertheless, analysts remain skeptical that such an increase will be sufficient to reverse the yen’s decline, which has been ongoing since early October.
Lee Hardman, a senior currency economist at MUFG, remarked that continued yen weakening may necessitate government intervention, especially if the currency approaches the 160.00 mark, a level that could prompt pushback from Washington. US Treasury Secretary Scott Bessent has previously attributed the yen’s undervaluation to Bank of Japan policies.
Australian Dollar Rises; Bitcoin Bounces Back
In Asia, the Australian dollar reached its highest level since October 30, trading at $0.6584 following slightly below-expectation GDP data. The Reserve Bank of Australia is scheduled to meet next week, with expectations to maintain current rates.
In India, the rupee breached the significant 90 per US dollar threshold, pressured by weak trade and portfolio flows, despite the country’s strong economic performance as the fifth-largest economy globally.
Meanwhile, Bitcoin rebounded sharply, gaining 2% to hit a two-week high of $93,633.70, recovering from a tumultuous November that saw the cryptocurrency fall over $18,000, marking its largest dollar loss since May 2021.
