Dollar Gains as Rate Cut Bets Diminish

17 Dec 2024 , 10:30 AM

As traders crank up long-term rate assumptions, the dollar remained stable and close to previous heights on Tuesday, the eve before an anticipated interest rate cut in the US.

The euro was close to the year’s lows at $1.0518, on the verge of an almost 5% calendar-year decline against the dollar. The 216 basis point difference between German and U.S. ten-year rates has increased by almost 70 basis points in just three months.

As markets have reduced the likelihood of a Japanese rate hike this week and anticipate a move in January, the yen was down in early trade, trading at 154.17 per dollar for the seventh straight session.

According to the CME FedWatch tool, following a cut on Wednesday, markets now expect a roughly 37% chance of either one 25 bp drop or none at all throughout 2025, up from roughly 21% a week earlier.

Interest rate futures indicate a 94% chance of an increase when the Federal Reserve makes its interest rate decision on Wednesday, despite the fact that an S&P Global purchasing managers survey shows that services-sector activity jumped to a three-year high.

The economy’s momentum has been pushing rates higher and the dollar higher as traders believe this week’s anticipated cut may be the last for some time. The Atlanta Fed’s GDPNow index is now at 3.3% for the fourth quarter.

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