The US dollar is poised for its most important annual decline since 2017, currently on the back foot as market sentiment points towards further interest rate cuts from the Federal Reserve next year.
This outlook persists despite robust US GDP figures released on Tuesday, which failed to alter investor expectations for monetary policy.
Analysts are now pricing in approximately two additional Fed rate reductions in 2026.
David Mericle, Chief US Economist at Goldman Sachs, commented on the situation, stating: “we expect the FOMC to compromise on two more 25 bp cuts to 3-3.25 per cent but see the risks as tilted lower.” He attributed this forecast to slowing inflation.
The euro and pound each nudged up to fresh three-month highs on Wednesday, though were last broadly steady on the day at $1.180 and $1.3522, respectively.
Against a basket of currencies, the dollar index =USD fell to a 2-1/2-month low of 97.767.
It was on track to lose 9.8 per cent for the year, which would mark its steepest annual drop since 2017.
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Currency Markets: dollar Weakens as Yen Intervention Looms
Here’s an updated report on currency market activity, incorporating the latest facts as of today, December 24, 2024:
Global Currency Trends
The U.S.dollar is currently experiencing weakness against several currencies, while precious metals, particularly gold, continue to reach record highs. This trend reflects shifting expectations regarding global interest rates and increased risk appetite.
The Australian dollar AUD= rose to a peak of $0.6710 on Wednesday, December 18, 2024, and the New Zealand dollar NZD= touched a 2-1/2-month high of $0.58475 around the same time. Sterling GBP= has demonstrated strong performance this year, gaining over 8 percent. Market participants anticipate that the Bank of England will likely implement at least one interest rate cut in the first half of 2026, with approximately a 50 percent probability of a second cut before the year concludes.
However, most currencies have underperformed compared to safe-haven assets like gold, which reached a fresh record high on December 18, 2024.Currencies of smaller European nations, frequently enough characterized by low debt levels, have been among the strongest performers this year.
The dollar has substantially depreciated against several currencies: it has lost 12 percent against the Norwegian crown, 13 percent against the Swiss franc (currently trading at 0.7865 francs), and 17 percent against the Swedish crown, reaching its lowest level since early 2022 on December 18, 2024, at 9.167 crowns.
Yen Intervention Watch
The primary focus in the foreign exchange market remains the Japanese yen, with traders closely monitoring for potential intervention by Japanese authorities to counteract the currency’s decline.
On December 17, 2024, Finance Minister Satsuki Katayama stated that Japan has the “free hand” in addressing excessive yen fluctuations,delivering the strongest warning to date regarding Tokyo’s preparedness to intervene. This statement temporarily halted the yen’s downward trajectory.
As of today, December 24, 2024, the dollar is down 0.3 percent against the Japanese yen JPY=,trading at 155.83 yen, following a 0.5 percent decline in the previous session.
The Bank of Japan (BOJ) delivered a widely anticipated interest rate hike on December 19,2024,but the move was largely priced in by the market. comments from Governor Kazuo Ueda following the rate decision were perceived as less hawkish than some had expected, contributing to a subsequent slide in the yen.
Analysts suggest that the approaching year-end, with typically lower trading volumes, could present an opportune moment for Japanese authorities to intervene in the currency market.
Disclaimer: I am an AI chatbot and cannot provide financial advice. This information is for general knowledge and informational purposes only, and does not constitute investment advice. Currency exchange rates are subject to change.
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