US dollar remains stable amid anticipation of rate cuts

The US dollar maintained its stability on Wednesday, holding firm against a basket of currencies as traders assessed the likelihood of the US Federal Reserve initiating interest rate cuts. 

Following the Federal Open Market Committee meeting last week, where three rate cuts were projected for 2024, financial markets experienced a rally.

Market sentiment currently suggests a 69 per cent probability of the first rate cut occurring at the Fed's March meeting, followed by a 63.3 per cent likelihood of another cut in May, according to the CME FedWatch tool.

Kyle Rodda, senior financial market analyst at Capital.com, commented on the situation, stating, “The proverbial genie is out of the bottle now, and the Fed either has to accept that and risk easing policy prematurely or push back very hard and cause a bit of volatility in the markets.”

Atlanta Federal Reserve President Raphael Bostic on Tuesday reiterated his expectation of two rate cuts in the second half of the year but stressed there was no "urgency" at the moment. Richmond Fed President Thomas Barkin also remarked that the central bank's ability to deliver on rate cut forecasts depends on economic performance.

The dollar index edged up 0.13 per cent to 102.25, rebounding from a four-month low of 101.76 last week. The movement of the greenback will hinge on economic data supporting the anticipated rate cuts, according to Rodda.

He added, “The US dollar is the inverse of the so-called 'everything rally,' which will beat on if the data confirms the need for cuts next year.”

Market attention is now focused on the release of the core Personal Consumption Expenditures (PCE) price index on Thursday, a key factor that could indicate whether inflation has slowed enough for the Fed to consider easing policy next year.

The euro fell 0.19 per cent to $1.0958, while the British pound was last trading at $1.2715. The Japanese yen consolidated around 143.73 against the dollar after reaching 144.95 the previous day.

The Bank of Japan left monetary policy unchanged, and uncertainty over potential rate cuts by the Fed contributed to the cautious approach.

In the cryptocurrency market, bitcoin showed a 1.6 per cent increase, reaching $42,922.00. Overall, global currency markets remain influenced by economic indicators and the evolving expectations of US monetary policy.

(With Reuters Inputs)