The U.S. dollar gains on a two-year high following the Fed recent statements. Fed Chair Jerome Powell emphasized a cautious approach to rate reductions in 2025. This hawkish stance dampened market expectations for significant rate cuts, sparking a robust rally for the dollar.
Currencies such as the Swiss franc, Canadian dollar, and South Korean won faced notable declines. The Swissie dropped to a five-month low of 0.90215 per dollar. Similarly, the Canadian dollar plunged to a four-year low, trading at 1.44655 against the greenback. Meanwhile, the won sank to its weakest level in 15 years.
Powell's remarks underscored the Federal Reserve's commitment to controlling inflation. He stated that further rate reductions depend on sustained progress in combating persistent inflation. The Fed's cautious tone reshaped market dynamics, with traders bracing for fewer easing measures in the near term.
The dollar index steadied at 108.15, close to its two-year peak of 108.27. Analysts now predict the Fed will maintain current rates through mid-2025. According to Nick Rees of Monex Europe, "The market's upward adjustment in expectations should bolster the dollar in the months ahead."
In contrast to the dollar’s strength, the yen fell to a one-month low of 154.88 against the dollar. The Bank of Japan’s upcoming policy decision looms large. Analysts anticipate no changes to the BOJ’s rates, given the fragile household confidence and risks associated with premature hikes.
Vishnu Varathan of Mizuho Bank highlighted that the BOJ’s cautious stance reflects economic vulnerabilities. Despite stubborn inflation, the central bank aims to avoid triggering demand shocks through aggressive tightening.
Other currencies, including the euro, sterling, and antipodean dollars, faced pressure amid the dollar’s rally. The euro recovered slightly to $1.0370 after a sharp drop earlier. Sterling remained near a three-week low at $1.25775.
The Australian and New Zealand dollars plunged to multi-year lows, driven by weak economic data. New Zealand officially entered a recession in Q3, fueling expectations for further rate cuts.
The Federal Reserve's measured pace of rate cuts next year is expected to keep the dollar dominant. Traders are closely monitoring global central bank actions for additional cues.
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Discover how the dollar gains on a two-year high amid hawkish Fed signals while the yen awaits BOJ decisions.
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