The U.S. dollar nudged higher on Wednesday, recovering slightly after its sharp slide in the prior session as traders continued to position for a potential Federal Reserve rate cut in December. The British pound, meanwhile, held steady as markets awaited the U.K.’s Autumn Budget announcement.
At 03:50 ET (08:50 GMT), the Dollar Index — which measures the greenback against six major peers — was up 0.1% at 99.727. That follows Tuesday’s 0.5% decline, the index’s largest one-day drop in nearly three weeks.
Fed Rate-Cut Bets Continue to Build
The dollar’s modest rebound comes after a string of weaker U.S. data on Tuesday reinforced expectations that policymakers are leaning toward another quarter-point cut next month.
Retail sales for September came in below forecasts, producer price growth matched expectations, and consumer confidence weakened in November as Americans grew more anxious about job security and personal finances.
These indicators added to a wave of dovish signals from several Fed officials, collectively pushing rate-cut expectations sharply higher.
Fed funds futures now price in an 84% chance of a 25-basis-point cut in December, up from about 40% only a week ago.
Traders will have more information to sift through today, including the Federal Reserve’s Beige Book report.
“It provides anecdotal indications about the state of the economy – effectively replacing the delayed third-quarter GDP report,” said analysts at ING. “Any mentions of growing job market concerns should smooth the dollar’s convergence to lower short-term rates.”
Sterling Holds Firm Before Autumn Budget
In early European trade, GBP/USD was up 0.1% to 1.3184, as attention turned to the fiscal statement due later from U.K. finance minister Rachel Reeves.
Reeves is widely expected to announce tax increases to keep the country’s public finances on track, but will likely avoid tightening too aggressively, given the U.K.’s already sluggish economic backdrop.
“The more the Chancellor chooses to push back tough tax and spending decisions until later this decade, the less scope the Bank of England will have to cut rates in the near-term, and the more sceptical investors are likely to be about the U.K.’s commitment to debt sustainability,” said ING.
EUR/USD edged up 0.1% to 1.1574, supported in part by signs that peace negotiations between Russia and Ukraine may be gaining traction.
Ukraine’s President Volodymyr Zelenskiy said Tuesday that the country was prepared to move forward with a U.S.-supported framework for ending the war and discuss unresolved issues with U.S. President Donald Trump.
“Some optimism on a truce is probably smoothing the recovery for the common currency,” ING added. “A breakthrough in the coming days could support the pair to 1.1700.”
Yen Slips as BoJ Rate-Hike Speculation Grows
In Asia, USD/JPY was up 0.2% at 156.39, after dropping 0.5% overnight on the heels of a Reuters report suggesting the Bank of Japan may be preparing to raise interest rates as early as next month. The report cited renewed concerns over the yen’s persistent weakness as well as reduced political pressure to maintain ultra-loose policy.
Elsewhere in the region:
- USD/CNY dipped 0.1% to 7.0801
- AUD/USD climbed 0.6% to 0.6502 after inflation data for October came in hotter than expected, dampening hopes for additional easing by the Reserve Bank of Australia
- NZD/USD surged 1.1% to 0.5679 after the Reserve Bank of New Zealand cut its cash rate by 25 basis points to 2.25% — as anticipated — but indicated the easing cycle may now be complete