US Dollar’s Outlook Amid Federal Reserve Talks
SINGAPORE (Reuters) – The US dollar seems headed for potential interest rate cuts from the Federal Reserve soon, hitting a four-year low against the euro and a recent low against the yen on Wednesday.
Traders are largely anticipating a 25 basis points reduction, closely watching comments from Chairman Jerome Powell after the decision to gauge the pace of future adjustments. The market is forecasting a total of about 67.9 basis points of cuts by year-end.
There’s also discussion around whether policymakers thought about a more significant cut of 50 basis points during the president’s visit. Donald Trump has been actively pushing for a reassessment of the US economy’s foundations, expressing concerns about the independence of the central bank.
The currency market remained subdued during Asian trading hours, as traders hesitated to make large moves ahead of the meetings. The euro dipped slightly to $1.1852, just under the four-year high of $1.18785 reached the previous day.
Sterling stayed steady at $1.3642, maintaining investor confidence in the Bank of England, despite hovering near a 2.5-month high following weak UK employment data on Tuesday.
The Dollar Index, which gauges the US dollar against six other currencies, was at 96.686, close to its lowest point since early July. The index has decreased nearly 11% this year, with investors more wary after recent developments.
Laura Cooper, a senior macro strategist, remarked, “The risk lies in how the Fed’s actions may affect risk assets. A cautious signal or an unexpectedly small cut could really shake things up.”
“With six potential cuts in the pipeline for next year, the actual significance lies not in the scale of this week’s decision but in how Powell frames the overall narrative.”
The Fed has started a two-day meeting with a new governor on leave from the Trump administration, discussing policies with another official who has faced pressure from Trump.
On Monday, a federal appeals court blocked the dismissal of federal Governor Lisa Cook, ensuring that Biden’s appointees can fully engage in this week’s policy discussions.
Recent data showed that retail sales unexpectedly rose in August as consumers varied their purchases. Yet, there were signs of a labor market decline and increasing prices, with tariffs posing risks to ongoing spending strength.
Benoit Anne from MFS Investment Management doesn’t expect Powell to offer bold guidance at this time, noting that “focusing on data and giving optimistic guidance doesn’t tend to work that well. Given the current market adjustments, it would take a lot to surprise investors now.”
The Swiss franc traded at 0.7869 per USD during Asian hours, while the Australian dollar reached an 11-month high of $0.6675.
The Japanese yen was at 146.22 per dollar in early trading, the strongest it’s been in a month, ahead of Friday’s Bank of Japan policy meeting, where adjustments are anticipated.
Eyes are also on the vote set for October 4th, in which the ruling Liberal Democrats will choose a new leader to succeed the resigned Prime Minister Isfer.
Howe Chung Wan, head of Asian bonds for Principal Asset Management, commented, “It’s unlikely the BOJ will take action before the election and amid potential Fed cuts this week.” He added that “our view is that the next rate hike might not happen until early 2026, as we need to see how new leadership unfolds.”
