dollar Dips, Euro Weakens Amidst Global Economic Uncertainty
The US dollar experienced a slight decline on Monday, though it remained near a three-week high. This comes ahead of the Federal Reserve’s final policy meeting of the year, a pivotal event for global markets. Simultaneously occurring,the euro weakened following the release of less-than-stellar regional economic activity data.
At 5:35 AM EDT (10:35 GMT), the US Dollar Index, which tracks the dollar against a basket of six major currencies, traded 0.1% lower at 106.580. This followed a recent climb towards a three-week high on Friday.
Dollar Retreats Ahead of Fed decision
The dollar’s recent gains have been tempered as investors await the Federal Reserve’s interest rate decision on Wednesday.A 25-basis-point rate cut, bringing the target policy range to 4.25-4.50%, is widely anticipated. The market is keenly focused on the Fed’s communication surrounding the decision and its implications for future rate adjustments.
“There will be more interest in how the fed is prepared to explain skipping its january meeting. The Fed’s new forecasts should also reduce the number of expected interest rate cuts in 2025 to three from four. All of this is currently being priced in by the market, but it looks like there is little reason for the fed to surprise dovishly this week and we see the dollar remaining supported,” analysts at ING stated in a recent note.
Euro Falls After PMI Data
Across the Atlantic, the euro experienced a marginal dip to 1.0499. This followed the release of data indicating continued contraction in eurozone business activity, although some signs of betterment were also noted.
The preliminary HCOB Purchasing Managers’ Index (PMI), compiled by S&P Global, rose to 49.5 in December from 48.3 in November. However, this figure remains below the 50 mark, which separates economic growth from contraction. While the manufacturing sector continues to struggle, the service sector showed signs of recovery, partially offsetting the weakness in manufacturing.
Several key European Central Bank (ECB) officials, including President Christine Lagarde, Pierre Wunsch, and isabel Schnabel, are scheduled to speak this week. Their comments will be closely scrutinized,particularly given the ECB’s recent interest rate cut.
“the latter two are more on the hawkish side and there could be upside risks for EUR/USD if they counter expectations on interest rates below monetary policy neutrality,” ING added.
The British pound strengthened, rising 0.3% to 1.2652, recovering from losses incurred the previous week. This uptick follows data revealing an unexpected contraction in the UK economy during October. The Bank of England’s monetary policy meeting,scheduled for Thursday,is expected to result in a 25-basis-point interest rate cut.
Yuan Under Pressure amidst China’s Economic Slowdown
In Asia, the Chinese yuan appreciated slightly, rising 0.2% to 7.2899, though it remains near a two-year low. This comes despite November’s economic growth meeting expectations, thanks in part to recent stimulus measures from Beijing. However, underlying weaknesses persist.
While house prices in China saw a slower decline in november, representing the slowest drop in 17 months, consumer spending remains weak despite government efforts to boost the economy. This continued weakness is a cause for concern.
The Japanese yen rose 0.1% to 153.70 against the dollar. This follows reports suggesting the Bank of Japan is highly likely to maintain its current interest rate policy this week, defying earlier predictions of a potential rate hike.
