U.S. Dollar Weakens Ahead of Fed Rate Cut, Impacting Global Currency Markets in 2024.

Dollar Trades Near 2024 Lows Ahead of Expected U.S. Rate Cut

As the U.S. dollar hovers near its lowest levels of 2024, market speculation intensifies around the Federal Reserve’s anticipated rate cut. On the eve of the Fed’s decision, traders are betting on an easing cycle that could kick off with a significant rate cut. Currently, the U.S. Dollar Index holds steady at 100.7, not far from its year-low of 100.51.

Euro and Yen Movements Signal Potential Volatility

In the currency markets, the euro remains strong at $1.1123, just shy of this year’s peak of $1.1201. Meanwhile, the Japanese yen has shown signs of recovery, briefly strengthening below 140 during Monday’s holiday-thinned trading. As the market turns to Tokyo, the yen has eased back to 140.77, still poised for potential gains against a dovish Fed stance. Analysts predict a sustained break below the 140 level could push the yen towards last January’s low of 127.215.

Markets Eye Aggressive Fed Rate Cut

Fed funds futures suggest a 67% chance of a 50-basis-point rate cut, a sharp rise from 30% just a week ago. This comes after reports indicated that the Fed might pursue a more aggressive easing strategy. Whether the rate cut is 25 or 50 basis points, experts believe a dovish tone from the Federal Reserve could further weaken the dollar, particularly against the Japanese yen.

Macquarie strategists noted, “The contrast between the Fed’s dovish outlook and the Bank of Japan’s more hawkish stance remains stark. As a result, the USD is likely to weaken further against major currencies, with the yen potentially seeing the largest gains.”

Sterling Leads G10 Currencies

Sterling has been the best-performing G10 currency in 2024, with a 3.9% rise against the U.S. dollar. It recently surged above $1.32, trading at $1.3203 in Asian markets. Despite inflation concerns, the Bank of England is expected to keep rates steady at 5% in its upcoming meeting, with markets pricing in a 36% chance of a rate cut.

Australian and New Zealand Dollars Rise Amid Fed Speculation

The Australian and New Zealand dollars also saw gains, trading at $0.6746 and $0.6189, respectively, as traders shifted focus to the Fed’s potential rate cut rather than concerns over China’s economic slowdown. Offshore yuan remained firm at 7.0947 during China’s Mid-Autumn Festival break.

As the world awaits the conclusion of the Federal Reserve’s two-day meeting on Wednesday, U.S. retail sales data and Canadian CPI figures are expected to provide further insight into North American economic health.