Morning Bid: Is the dollar on its way to decline?

Tom Westbrook Discusses Market Outlook

As the markets entered the quiet period surrounding U.S. Thanksgiving on Thursday, the dollar was on track for its largest weekly drop in over four months, while traders began looking ahead to 2026.

In the U.S., there’s a growing expectation for further policy easing, and it seems the rest of the world may be nearing the end of its own rate cuts. South Korea recently shifted to a more hawkish stance, which strongly impacted its national debt.

In Kyushu, Asahi Noguchi, previously more dovish in his views at the Bank of Japan, suggested gradual interest rate increases, aligning more closely with other policymakers who have adopted a similar tone.

Just a day before, the Reserve Bank of New Zealand indicated it was likely done with rate cuts, yet the New Zealand dollar continued to rise—nearly 2% since their recent policy meeting.

The European Central Bank is expected to release minutes from its October meeting today, when rates were kept steady. Additionally, Europe will soon reveal confidence statistics, and the commodity markets are watching for updates on the Ukraine peace talks. Russia has dismissed significant concessions following a leaked conversation involving a Kremlin aide and a U.S. envoy.

Currently, markets anticipate a rate cut of about 90 basis points in the U.S. by the end of 2026, compared to Japan’s 75 basis points and New Zealand’s 40. The U.S. dollar index has fallen roughly 1% from a six-month peak reached last week.

While interest rates in New Zealand and Japan are significantly lower than in the U.S., currency markets tend to look forward, making exchange rates shift as investors chase better yields.

There’s talk among traders about a potential breakout in the Australian market, as the country now boasts the highest three-year and ten-year interest rates in the G10 following unexpectedly strong inflation data last week.

Still, the Australian dollar seems stuck in a range it’s held for 18 months. It’s possible that market watchers are paying close attention to the renminbi’s strength, which might catch some momentum if the yuan appreciates further.