2023-12-06 20:26:33
The US dollar hit a two-week high on Wednesday, while the euro was weak overall, with markets increasingly betting on an interest rate cut from the European Central Bank (ECB) soon. the month of March.
Although markets continue to price in interest rate cuts of at least 125 basis points from the US Federal Reserve next year, the dollar was able to hold steady as bets on rate cuts rates of other central banks were intensifying.
The dollar index, which measures the currency against six other major currencies, was up 0.19% at 104.16. The euro was down 0.29% at $1.0764.
Traders are betting there is about an 85% chance the ECB will cut interest rates at the March meeting, with almost 150 basis points of reduction expected by the end of next year. Influential ECB member Isabel Schnabel told Archyde.com on Tuesday that further interest rate hikes could be considered due to a “remarkable” fall in inflation.
The euro also hit a three-month low against the pound, a five-week low against the yen and a six-and-a-half week low against the Swiss franc.
“This is a reasonably sized sell-off and the market is trying to understand if this is just a correction. Has the market been too exuberant in previous weeks? I think there’s definitely an element of that,” said Amo Sahota, director of currency advisory firm Klarity FX in San Francisco.
A LITTLE EXAGGERATED
The ECB will set interest rates next Thursday and is almost certain to leave them at the current record low of 4%. The Fed and Bank of England are also expected to keep rates unchanged next Wednesday and Thursday respectively.
The Bank of Canada kept its key rate at 5% on Wednesday and, unlike its counterparts, left the door open to a further hike, saying it was still concerned about inflation.
According to the CME’s FedWatch tool, traders gave a 60% chance that the US central bank will cut rates in March.
“Markets have priced in rate cuts aggressively, without any confirmation from central banks,” said Adam Button, chief currency analyst at ForexLive in Toronto. “As December continues, we need either a change in tone from central bankers or a reassessment of prices in the markets.”
If the Fed were to cut rates as markets expect, the dollar could lose its grip on other G10 currencies next year, dampening the outlook for the greenback, according to a Archyde.com poll of currency strategists foreign.
In Asia, the spotlight was on China, as markets faced the downgrading of the Asian giant’s credit outlook by rating agency Moody’s.
China’s offshore yuan remained steady at $7.1728 per dollar, a day after Moody’s cut China’s credit outlook to “negative.”
Major Chinese state banks accelerated selling of U.S. dollars after Moody’s statement on Tuesday, and they continued to sell the greenback on Wednesday morning, Archyde.com reported.
Elsewhere in Asia, the Japanese yen weakened 0.15% against the greenback, to 147.38 per dollar. The Australian dollar fell 0.02% to $0.65495.
In cryptocurrencies, bitcoin fell 0.06% to $44,049, still near its highest level since April 2022.
The world’s largest cryptocurrency has gained 150% this year, fueled in part by optimism that a U.S. regulator will soon approve exchange-traded bitcoin spot funds (ETFs).
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