Investing.com – The US dollar fell slightly on Thursday but remained near a two-year high after the Federal Reserve announced a slower pace of rate cuts through 2025, while the pound rebounded ahead of the US’s latest policy meeting Bank of England.
At 05:05 ET (10:05 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading 0.1% lower at 107.670, after rising to a more than two-year high on Wednesday. year.
The dollar falls from a two-year high
The dollar rose on Wednesday after the currency lowered its outlook for rate cuts in the coming year after the expected rate cut came to fruition.
US central bank policymakers now only foresee an additional easing of 50 basis points in 2025, instead of the 100 basis points indicated in the previous September forecasts.
“We believe this aggressive adjustment to Fed communications will lay the foundation for sustained dollar strengthening in the new year,” ING analysts said in a note.
“Markets fully expect support in January and 11 basis points are priced in for March. If the dot plot indeed works as a benchmark for interest rate expectations for the next three months, it raises the bar for a data surprise that seriously threatens the dollar’s large interest rate advantage.”
Economic data centers around the third quarter release, which is expected to show annualized growth in the quarter falling to 2.8%, down from 3.0% in the previous quarter.
Sterling bounces ahead at BOE meeting
In Europe, it traded 0.7% higher at 1.2662, up from Wednesday’s low ahead of the Bank of England’s policy-setting meeting later in the session.
The country is widely expected to keep interest rates unchanged and continue its cautious approach to easing monetary policy as concerns remain about inflation.
“The focus will be on any adjustments to forward-looking language and vote distribution (which we expect with a hold-cut of 8-1). There is no press conference planned for this meeting,” ING said.
“Our perception is that the BoE will try to make this announcement a non-event, which will provide cautious signals for further easing, but still emphasize the persistence of services inflation and wages.”
rose 0.6% higher to 1.0415, recovering from the sharp 1.3% decline in the previous session.
The country cut its key interest rate for the fourth time this year last week and is likely to cut rates further in 2025 as inflation concerns subside.
“If the incoming data continues to confirm our starting point, the direction in which we are moving is clear and we expect to cut rates further,” ECB President Christine Lagarde said in a speech earlier this week.
Eurozone inflation stood at 2.3% last month and the ECB expects it to reach its 2% target next year.
The yen falls after the BOJ keeps interest rates unchanged
In Asia, yields rose 1.5% to 157.13, rising above 155 for the first time since late November, after holding rates steady and signaling a cautious outlook for 2025.
The BOJ’s decision disappointed some traders who were pushing for a December rate hike. The central bank had raised interest rates twice this year in a historic reversal from ultra-loose policy.
rose 0.3% to 7.3078, with the pair climbing to its highest level since September 2023. The yuan was under pressure on the prospect of looser monetary conditions in China as the government flagged more stimulus measures to boost growth.
