The U.S. dollar drifted lower at the start of a week headlined by a Federal Reserve meeting, with traders widely expecting an easing of monetary policy.
At 04:15 ET (09:15 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower to 98.940, hovering near a five-week low.
Fed meeting looms large
An interest rate cut by the Federal Reserve rate cut at the conclusion of its two-day policy meeting on Wednesday is widely expected, especially after the delayed release, on Friday, of September’s core personal consumption expenditures price index, came in softer than expected.
Fed funds futures are pricing in a roughly 88% chance of a Fed cut, according to CME’s FedWatch tool.
There’s little in the way of economic data to change the narrative Monday, although Tuesday’s JOLTS job openings data could take on additional importance given the monthly official jobs report is now being released after the Fed meeting.
“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,” said analysts at ING, in a note.
“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.”
ECB to hike next?
In Europe, EUR/USD rose 0.1% to 1.1654, with the single currency helped by the release of data showing German industrial production rose much more than expected in October.
Industrial production increased by 1.8% compared with the previous month, the federal statistics office said on Monday, ahead of the predicted 0.4% rise.
Adding to the euro’s upside were comments from ECB board member Isabel Schnabel, who told Bloomberg News that the ECB’s next move may be an interest rate hike, rather than a cut as some still expect.
The ECB has cut rates by a combined 2 percentage points in the year to June, but it has since kept them on hold.
“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,” said ING, “But Schnabel has suggested the ECB could revise up its growth forecasts in its next forecast round.”
GBP/USD slipped 0.1% to 1.3325, easing back from the six-week peak of 1.3385 seen last week as traders position for next week’s Bank of England policy meeting.
Japanese GDP contracted in Q3
In Asia, USD/JPY gained 0.1% to 155.44, after revised third-quarter GDP figures showed the Japanese economy contracted more sharply than earlier estimated, driven by soft capital expenditure and weak exports.
The update did little to alter expectations that the Bank of Japan remains on track for a rate hike next week, with markets focusing on wage growth indicators and policymakers’ communication in the coming days.
USD/CNY edged just higher to 7.0714, despite data showing China’s November trade surplus widened, supported by a 5.9% jump in exports year-on-year while imports grew only modestly.
AUD/USD slipped 0.1% to 0.6636, after the Australian dollar posted strong gains last week after data showing signs of economic strength.