The dollar held steady ahead of a widely anticipated Federal Reserve rate cut, while the Australian dollar rose after the Reserve Bank of Australia kept rates on hold. Markets are positioning for a Fed move this week, with several central bank decisions looming before the weekend.
“Tomorrow is the Fed, so traders aren’t likely to make big repositioning moves just yet,” noted Michael Pfister, FX analyst at Commerzbank. The U.S. dollar index, which tracks the greenback against a basket of currencies, edged up about 0.1% to around 99.13.
Attention turned to key data, including the NFIB small-business optimism index for November and the JOLTS report for October, due later in the session.
Bond markets have begun to scale back expectations for rate cuts in 2026 as skepticism grows that Kevin Hassett, a potential successor to Jerome Powell as Fed chair and whose term ends in May, will be as dovish as some expect from the new administration.
Despite this, traders still price in a high likelihood of some easing from the Fed this week, while eyes widen to the year-ahead path for policy. Pfister said, when the Fed’s statement is released, the dot plot will be closely scrutinized. Diverging views among policymakers could mean a lower dot plot would not be favorable for the dollar.
Fed funds futures imply an 89.4% probability of a 25 basis-point cut at the two-day meeting starting December 9, according to CME Group’s FedWatch.
The yield on the U.S. 10-year Treasury note hovered around 4.164%, dipping slightly after a three-day rally that pushed yields to the highest in nearly three months.
In Europe, the euro was flat after a prior selloff in bund markets.ECB board member Isabel Schnabel suggested the bank may consider an interest-rate hike in the future, though not imminently, keeping the currency near $1.1635.
AUSTRALIA GAINS; EARTHQUAKE SHAKES YEN
The Australian dollar strengthened following the RBA’s decision to hold rates at 3.6% for a third straight month, with the AUD/USD rising about 0.2% to around $0.6637. The RBA signaled that inflation could stay elevated for a while, but Governor Michele Bullock also stressed that further rate cuts aren’t on the cards for now. Markets interpreted this as aligning with a slightly hawkish tilt.
“The meeting didn’t tamp down hawkish expectations,” said Sim Moh Siong of Bank of Singapore. “What was conveyed aligns with a tilt toward a more hawkish stance.” Analysts noted that the press conference underscored that rate cuts may be paused for now, and the next move could even be higher if inflation remains persistent.
In the yen, the USD/JPY saw mild weakness after initially strengthening in Asia as Japan was struck by a powerful 7.5-magnitude earthquake. The quake heightened risk aversion ahead of the Fed decisions and other central-bank announcements, though a five-year JGB auction drew solid demand.
The yen traded about 0.3% weaker at around 156.39 per dollar, after an initial improvement following evacuation orders and tsunami warnings that were later downgraded to advisories.
The offshore yuan firmed slightly to about 7.0631 per dollar as investors noted a Politburo statement signaling limited urgency for fresh stimulus measures.
The British pound held near $1.332, while the New Zealand dollar rose roughly 0.2% to around $0.579.
Crypto markets retreated, with bitcoin around $90,534 and ether near $3,136.
And this is where markets diverge: a dimmer view on near-term easing versus the potential for a more hawkish shift later in the year could shape trading in the days ahead. Do you think the Fed will deliver a traditional, measured cut as promised, or could inflation resilience force a rethink? Share your take in the comments.
