The U.S. dollar drifted lower on Wednesday, with traders increasingly confident that the Federal Reserve will trim rates next week, while the British pound continued to benefit from its post-budget momentum.
At 04:30 ET (09:30 GMT), the Dollar Index — a gauge of the greenback against six major peers — slipped 0.2% to 99.107, putting it on track for a yearly decline of more than 8%.
Is Hassett the frontrunner for Fed Chair?
Expectations for a December 10 rate cut have strengthened as signs of economic softness accumulate, weighing on the U.S. currency. Investors will also parse additional data in the coming days, including the ADP private payrolls report later Wednesday and November’s PCE inflation measure on Friday.
According to the CME FedWatch tool, fed funds futures now imply an 88% chance of a 25 basis-point cut next week, sharply higher than the roughly 63% probability priced a month ago.
Speculation around key Fed appointments has also pressured the dollar. Growing consensus suggests that White House economic adviser Kevin Hassett could soon be nominated as the next Federal Reserve Chair. Hassett, formerly a senior Fed economist, is viewed as close to President Donald Trump and supportive of a more rapid easing of monetary policy.
“Heading into Thanksgiving, betting markets gave roughly a 35% probability for both Hassett and [Christopher] Waller as the next Fed chair. This week, Hassett’s probability has shot up to 85%.” said analysts at ING.
They added, “Given perceptions of Hassett as quite dovish, the dollar is a little weaker across the board, the yield curve has seen some modest bullish steepening and risk assets have turned gently bid. This could be the dominant theme until next week’s FOMC meeting.”
Euro climbs toward largest yearly rise since 2017
EUR/USD rose 0.2% to 1.1643, keeping the pair on track for gains of more than 12% in 2025 — potentially its strongest year since 2017.
The European Central Bank meets in mid-December and is widely expected to leave rates unchanged, following a cumulative 200-basis-point easing between January and June.
Fresh PMI data released Wednesday showed that eurozone business activity accelerated at its fastest pace in around 30 months, with a robust services sector more than compensating for ongoing manufacturing softness.
“If EUR/USD can nudge through the 1.1655/70 area – perhaps with the help of some softer US data – we could see a decent move through 1.17. We retain a year-end target of 1.18,” ING noted.
GBP/USD climbed 0.3% to 1.3259, hovering near a one-month high after last week’s U.K. tax-and-spend plan. Goldman Sachs described the budget as “a set of measures fairly close to market expectations,” saying the government had avoided scenarios that investors considered more disruptive.
The bank added that the announcement “steered clear of the more currency-negative outcomes of either a larger near-term fiscal contraction than anticipated or of delivering too little of an overall consolidation that sees a reintroduction of U.K. fiscal risk premium in the currency.”
Australian dollar lifts on GDP beat, yen steadies
In Asia, USD/JPY dipped 0.1% to 155.75, as the likelihood of a rate increase from the Bank of Japan later this month continued to firm — a stark contrast to the U.S., where an 85% probability of a Fed cut is already priced in.
USD/CNY slipped 0.1% to 7.0654, while AUD/USD advanced 0.3% to 0.6576, its highest level in a month, after stronger-than-expected Australian Q3 GDP figures.
Quarterly growth came in at 0.4%, missing forecasts of 0.7%, but annual growth accelerated to 2.1%, the best reading in two years.