After the Fed signals rate reduction for next year, the dollar falls in early trade

14 Dec 2023 , 09:46 AM

The Federal Reserve’s most recent economic forecasts suggested that the cycle of interest rate hikes has ended and that reduced borrowing rates will begin in 2024, which put pressure on the dollar on Thursday.

With the European Central Bank (ECB) set to make its policy announcement later on Thursday and the Bank of Japan scheduled to meet the following week, the euro and Japanese yen both spiked in response.

During the Federal Open Market Committee (FOMC) meeting on Wednesday, Fed Chair Jerome Powell stated that the record tightening of monetary policy is probably coming to an end and that a discussion about borrowing cost reductions is ‘coming into view.’ Nearly all policymakers predicted that borrowing prices will decrease by 2024.

The U.S. dollar index, which compares the value of the dollar to a basket of other currencies, was last seen at 102.87, having fallen as low as 102.77 the previous night.

According to the CME FedWatch tool, markets are now pricing in a 75% possibility of a rate drop in March, up from 54% a week earlier.

Despite the fact that recent data has increased confidence that the Fed can accomplish a soft landing for the US economy, Powell left open the possibility of acting once more if necessary, stating that ‘the economy has surprised forecasters.’

The ECB, the Bank of England (BoE), Norges Bank, and Swiss National Bank are among the central banks whose choices are now the focus of the market.

The euro had a spike on Wednesday and was essentially level at $1.0882. The most recent price of sterling was $1.2623.

It is thought that the Norwegian central bank is the only one with the ability to increase interest rates. Additionally, there’s a chance that the SNB will lessen its backing of the Swiss franc in foreign exchange markets.

In other news, the yen strengthened considerably after the US dollar’s overnight decline, trading at 142.80 yen to the dollar.

The Japanese currency surged last week on expectations that the Bank of Japan (BOJ) may abolish negative interest rates at its monetary policy meeting on December 18–19, but those optimism have largely subsided after Bloomberg reported on Monday that BOJ officials see little need to rush.

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