The U.S. dollar eased slightly on Monday as the new trading week began, with markets squarely focused on the Federal Reserve’s upcoming policy meeting and expectations that monetary conditions will be loosened.
At 04:15 ET (09:15 GMT), the Dollar Index — which measures the U.S. currency against six major peers — dipped 0.1% to 98.940, holding just above a five-week low.
Fed meeting takes center stage
Traders broadly expect the Fed to cut interest rates on Wednesday when its two-day gathering concludes, particularly after Friday’s delayed core PCE report showed weaker-than-anticipated inflation. CME’s FedWatch tool now assigns an 88% probability to a rate reduction.
With no major U.S. data due Monday, attention will shift to Tuesday’s JOLTS job openings, which may carry extra weight given the monthly employment report is being released after the Fed meeting.
Analysts at ING noted: “The Fed could be a positive event risk for the dollar in that it seems hard for the Fed to validate the 90bp of easing priced into Fed Funds futures by early 2027.”
They added that: “However, the potential formal nomination of Kevin Hassett as Fed Chair over the coming months and the seasonal factors keeping the dollar weak into year-end should limit the dollar’s upside.”
Euro edges higher as ECB outlook shifts
EUR/USD rose 0.1% to 1.1654, supported by stronger-than-expected German industrial production. Output climbed 1.8% in October — far above forecasts for a 0.4% rise.
The euro also benefited from comments by ECB board member Isabel Schnabel, who told Bloomberg News that the central bank’s next policy move could be a rate increase, defying expectations from some analysts who still anticipate another cut.
ING commented that: “These remarks probably need to be seen in the context of her hawkish background and perhaps as a foil to those at the ECB still favoring one last rate cut.”
The bank added that Schnabel has signaled the ECB may revise its growth projections upward in its next forecasting round.
GBP/USD dipped 0.1% to 1.3325, pulling back from last week’s six-week high of 1.3385 ahead of next week’s Bank of England meeting.
Yen slips as Japan revises GDP lower
USD/JPY ticked up 0.1% to 155.44 after new figures showed Japan’s economy contracted more severely in Q3 than initially estimated, with weak business investment and sluggish exports weighing on growth.
The revision did little to shift expectations that the Bank of Japan is still preparing to raise rates next week, with markets closely watching wage trends and BOJ communication.
China trade surplus grows; AUD eases
USD/CNY inched higher to 7.0714 even after data revealed China’s November trade surplus widened on the back of a 5.9% rise in exports year-over-year, while imports saw only modest gains.
AUD/USD slipped 0.1% to 0.6636 following last week’s strong rally, which had been fueled by economic data showing surprisingly resilient activity.