Forex
US dollar rallies on Fed outlook, potential Trump win; inflation weighs on pound
By Gertrude Chavez-Dreyfuss
NEW YORK (Reuters) -The U.S. dollar firmed on Wednesday, hitting an 11-week high, as investors ruled out a hefty interest rate cut from the Federal Reserve at the next policy meeting and priced in a potential election victory by former President Donald Trump.
Sterling, meanwhile, tumbled to its lowest in two months after softer-than-expected British inflation data offered scope for the Bank of England to cut rates more forcefully, while the euro slid to an 11-week low ahead of a European Central Bank meeting.
But with U.S. presidential elections a few weeks away, investors’ focus has shifted to the highly-anticipated race, along with the Fed’s interest rate path.
Trump’s plan to implement tax cuts, looser financial regulations, and higher tariffs is viewed as positive for the dollar. Higher tariffs, for instance, would have negative implications for growth in Asian and European exporters that could force their central banks lower their interest rates, undermining their currencies, while lifting the dollar.
Amo Sahota, executive director at FX consulting firm Klarity FX in San Francisco pointed out that several major central banks are expected to undertake bigger rate cuts than the Fed because their economies are slowing much quicker than that of the United States. That has provided support for the dollar.
He also cited Trump’s interview with Bloomberg News Editor-in-Chief John Micklethwait at the Economic Club of Chicago on Tuesday, where the former president doubled down on his plan to impose high tariffs on U.S. trading partners.
“Trump really went hard into the tariff conversation…although I think he’s just making a point that he’ll do whatever it takes to stop people from,” flooding the market with foreign products at the expense of U.S.-made goods.
“Combined that with overnight polling showing Trump necking ahead here…and that’s enough to leave the dollar at the top of the billing.”
In afternoon trading, the dollar rose 0.3% to 103.59, after hitting an 11-week high of 103.60.
The euro, the ‘s biggest component, fell 0.4% to $1.0855 , after earlier sliding to $1.0853, its lowest since early August.
Investors will be closely watching Thursday’s ECB meeting, though if policymakers deliver the currently priced 25-bp cut and President Christine Lagarde refrains from giving too many clues about its rate outlook, the market impact could be muted.
STERLING PRESSURE
The pound, meanwhile, was one of the biggest movers among major currencies, dropping 0.7% to $1.2982 . It dipped under the $1.30 level for the first time since Aug. 20, after data showing the rate of annual consumer price inflation dropped to 1.7% in September from 2.2% in August.
That was the lowest reading since April 2021, and under the 1.9% forecast by a Reuters poll of economists. It reinforced bets on a BoE interest rate cut next month and made a further cut in December more likely.
The euro was last 0.5% higher against the pound at 83.62 pence..
In the United States, traders have priced in a 97% chance of a 25-bp cut when the Fed next decides policy on Nov. 7, with a 3% probability of a pause, according to LSEG estimates. A month ago, traders saw 50-50 odds of a super-sized 50-bp reduction.
Against the yen, the dollar added 0.4% against the yen to 149.765 yen, not far from Monday’s high of 149.98 yen, the strongest since Aug. 1.
Bank of Japan board member Seiji Adachi said on Wednesday the central bank must raise rates at a “very moderate” pace and avoid hiking prematurely given uncertainties about the global outlook and domestic wage developments.
In other currencies, the Australian and New Zealand dollars sagged as scepticism widened over stimulus from top trading partner China.
The dropped to US$0.6659, the lowest since Sept. 12, and last traded at US$0.6663, down 0.6%. The New Zealand unit sank to US$0.6041, a level last seen on Aug. 19, and was last down 0.4% at US$0.6057 .
Currency bid prices at 16 October 07:37 p.m. GMT
Description RIC Last U.S. Close Previous Session Pct Change YTD Pct High Bid Low Bid
Dollar index 103.55 103.26 0.29% 2.15% 103.6 103.17
Euro/Dollar 1.0859 1.0893 -0.31% -1.62% $1.0902 $1.0854
Dollar/Yen 149.76 149.23 0.36% 6.18% 149.795 148.88
Euro/Yen 1.0859 162.48 0.09% 4.49% 162.88 162.13
Dollar/Swiss 0.8654 0.8622 0.39% 2.84% 0.8658 0.8615
Sterling/Dollar 1.2981 1.3074 -0.71% 2.01% $1.3075 $1.298
Dollar/Canadian 1.3755 1.3775 -0.13% 3.77% 1.3793 1.3756
Aussie/Dollar 0.6663 0.6703 -0.58% -2.25% $0.6705 $0.6659
Euro/Swiss 0.9397 0.9389 0.09% 1.2% 0.9412 0.9379
Euro/Sterling 0.8362 0.8331 0.37% -3.53% 0.838 0.8327
NZ Dollar/Dollar 0.6056 0.6083 -0.43% -4.15% $0.6086 0.6041
Dollar/Norway 10.9205 10.7989 1.13% 7.75% 10.936 10.8073
Euro/Norway 11.8599 11.7821 0.66% 5.67% 11.889 11.7724
Dollar/Sweden 10.5086 10.4016 1.04% 4.39% 10.518 10.4032
Euro/Sweden 11.4128 11.3441 0.61% 2.58% 11.419 11.3324
Investing.com – The US dollar rose in thin holiday-impacted trade Tuesday, retaining recent strength as traders prepared for fewer Federal Reserve rate cuts in 2025.
At 04:25 ET (09:25 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher to 107.905, near the recently hit two-year high.
Dollar remains in demand
The dollar has been in demand since the Federal Reserve outlined a hawkish outlook for its interest rates after its last policy meeting of the year last week, projecting just two 25 bp rate cuts in 2025.
In fact, markets are now pricing in just about 35 basis points of easing for 2025, which has in turn sent US Treasury yields surging, boosting the dollar.
The two-year Treasury yield last stood at 4.34%, while the benchmark 10-year yield steadied near a seven-month high at 4.59%.
“We think this hawkish re-tuning of the Fed’s communication will lay the foundation for sustained dollar strengthening into the new year,” said analysts at ING,in a note.
Trading volumes are likely to thin out as the year-end approaches, with this trading week shortened by the festive period.
Euro near to two-year low
In Europe, fell 0.1% to 1.0396, near a two-year low, with the set to cut interest rates more rapidly than its US rival as the eurozone struggles to record any growth.
The ECB lowered its key rate earlier this month for the fourth time this year, and President Christine Lagarde said earlier this week that the eurozone was getting “very close” to reaching the central bank’s medium-term inflation goal.
“If the incoming data continue to confirm our baseline, the direction of travel is clear and we expect to lower interest rates further,” Lagarde said in a speech in Vilnius.
Inflation in the eurozone was 2.3% last month and the ECB expects it to settle at its 2% target next year.
traded largely flat at 1.2531, with sterling showing signs of weakness after data showed that Britain’s economy failed to grow in the third quarter, and with Bank of England policymakers voting 6-3 to keep interest rates on hold last week, a more dovish split than expected.
Bank of Japan stance in focus
In Asia, fell 0.1% to 157.03, after rising as high as 158 yen in recent sessions, after the signaled that it will take its time to consider more interest rate hikes.
edged 0.1% higher to 7.3021, remaining close to a one-year high as the prospect of more fiscal spending and looser monetary conditions in the coming year weighed on the currency.
Beijing signaled that it will ramp up fiscal spending in 2025 to support slowing economic growth.
Investing.com– Most Asian currencies moved in a tight range on Tuesday, while the dollar extended overnight gains as traders positioned for a slower pace of interest rate cuts in the coming year.
Trading volumes were muted before the Christmas break, while most regional currencies were nursing steep losses against the greenback for the year.
Asian currencies weakened sharply last week after the Federal Reserve effectively halved its outlook for rate cuts in 2025, citing concerns over sticky U.S. inflation.
Dollar near 2-year high on hawkish rate outlook
The and both rose about 0.1% in Asian trade, extending overnight gains and coming back in sight of a two-year high hit last week.
While the greenback did see some weakness after data read lower than expected for November, this was largely offset by traders dialing back expectations for interest rate cuts in 2025.
The Fed signaled only two rate cuts in the coming year, less than prior forecasts of four.
Higher U.S. rates diminish the appeal of risk-driven Asian markets, limiting the amount of capital flowing into the region and pressuring regional markets.
Asia FX pressured by sticky US rate outlook
Most Asian currencies weakened in recent sessions on the prospect of slower rate cuts in the U.S., while uncertainty over local monetary policy and slowing economic growth also weighed.
The Japanese yen’s pair fell 0.1% on Tuesday after rising as high as 158 yen in recent sessions, after the Bank of Japan signaled that it will take its time to consider more interest rate hikes.
The Australian dollar’s pair fell 0.2% after the minutes of the Reserve Bank’s December meeting showed policymakers saw an eventual easing in monetary policy, citing some progress in bringing down inflation. But they still flagged potential upside risks for inflation.
The Chinese yuan’s pair rose 0.1% and remained close to a one-year high, as the prospect of more fiscal spending and looser monetary conditions in the coming year weighed on the currency.
Beijing signaled that it will ramp up fiscal spending in 2025 to support slowing economic growth.
The Singapore dollar’s pair rose 0.1%, while the Indian rupee’s pair rose 0.1% after hitting record highs above 85 rupees.
Investing.com — The dollar has surged past its post-2022 range, buoyed by U.S. economic exceptionalism, a widening interest rate gap, and elevated tariffs, setting the stage for further gains next year.
“Our base case is that the dollar will make some further headway next year as the US continues to outperform, the interest rate gap between the US and other G10 economies widens a little further, and the Trump administration brings in higher US tariffs,” Capital Economics said in a recent note.
The bullish outlook on the greenback comes in the wake of the dollar breaking above its post-2022 trading range, reflecting renewed confidence among investors driven by robust U.S. economic data and policy expectations.
A key risk to the upside call on the dollar is a potential economic rebound in the rest of the world, similar to what occurred in 2016, Capital Economics noted.
Following the 2016 U.S. election, economic activity in the rest of the world rebounded, while Trump’s tax cuts didn’t materialize until the end of 2017, and the Fed took a more dovish path than discounted, resulting in a 10% drop in the DXY on the year, which was its “worst calendar year performance in the past two decades,” it added.
While expectations for a recovery in Europe and Asia seem far off, a positive surprise for global growth “should be ruled out”, Capital Economics said.
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