The US dollar made a comeback from its 2-1/2 month low on Wednesday following the release of minutes from the Federal Reserve’s latest meeting. The minutes hinted at the likelihood of interest rates remaining restrictive for the foreseeable future, despite the apparent conclusion of the rate-hike cycle.
According to the minutes, the central bank plans to proceed “carefully,” with “all participants judging it appropriate to maintain” the current rate setting. The consensus among Fed officials is to consider raising interest rates only if there is faltering progress in controlling inflation. This stance echoes recent comments by policymakers, leaving the door open for more tightening, even as markets have started pricing rate cuts from early next year.
Market sentiment suggests a high certainty that the Fed will maintain rates at their December meeting. However, there is approximately a 27% chance of a rate cut as early as March 2023, according to CME’s FedWatch Tool. Niels Christensen, Chief Analyst at Nordea, cautioned that “almost four rate cuts are fully priced for next year, and that looks very aggressive.” He added that the Fed has historically made substantial cuts when they initiate such actions.
The dollar index (DXY), which measures the currency against a basket of others, rebounded by 0.2% to 103.78, moving away from its lowest level since August. Nevertheless, the index is still down about 2.6% in November, set for its worst monthly performance in a year.
Analysts noted that market participants are keen to take profits off the table before liquidity diminishes ahead of the U.S. Thanksgiving holiday. High U.S. Treasury yields, which have supported the dollar, have also declined from multi-year highs in October, aligning with investor expectations that the Fed has concluded its rate-increase cycle.
Treasury yields slipped again, with the yield on the benchmark 10-year note (US10Y) last recorded at 4.4003%.
In the cryptocurrency sphere, Bitcoin (BTC) experienced a 2.3% increase, reaching $36,569 a day after prosecutors announced that Binance chief Changpeng Zhao would step down and plead guilty to breaking criminal U.S. anti-money laundering laws. This development is part of a $4 billion settlement resolving a years-long investigation into the world’s largest crypto exchange.
The foreign exchange market also saw movements in major currencies. The euro (EURUSD) was last at $1.0894 after reaching $1.09655 on Tuesday, its highest against the dollar since mid-August. Sterling (GBPUSD) was down 0.2% at $1.2518, not far from a two-month high of $1.2558 touched on Tuesday.
Japan’s yen (USDJPY) was off 0.6% at 149.265 per dollar after hitting a two-month high of 147.155 on Tuesday. Analysts suggest that speculation about the Bank of Japan exiting negative interest rates next year could stabilize the Japanese currency, despite ongoing challenges.
More than 80% of economists in a Reuters poll anticipate the Bank of Japan ending its negative interest rate policy next year. This sentiment aligns with the growing belief that the central bank is nearing an exit from its controversial monetary settings.