The dollar eased on Monday, ahead of a week packed with central bank meetings and headlined by the U.S. Federal Reserve, where an interest rate cut is all but priced in, although a highly divided committee makes for a wild card.
Besides the Fed decision on Wednesday, the central banks of Australia, Brazil, Canada and Switzerland also hold rate-setting meetings, although none of these are expected to make any changes to monetary policy.
Analysts expect the Fed to make a “hawkish cut”, where the language of the statement, median forecasts and Chair Jerome Powell’s press conference point to a higher bar on further rate reduction.
That could support the dollar if it pushes investors to dial back expectations for two or three rate cuts next year, though messaging could be complicated by policymakers’ division as several have already all but indicated their voting intentions.
HIGH RISK OF DISSENT
“We expect to see some dissents, potentially from both hawkish and dovish members,” said BNY’s head of markets macro strategy Bob Savage in a note to clients.
The Federal Open Market Committee has not had three or more dissents at a meeting since 2019, and that has happened just nine times since 1990.
Even though the U.S. currency has drifted lower for the past three weeks, dollar bulls have recovered some of their bottle. Weekly positioning data shows speculators hold their largest long position – one that assumes the value of the dollar will rise – since before President Donald Trump’s “Liberation Day” tariff bombshell that sent the currency tumbling.
The labour market is softening, but overall growth is holding up, the stimulus from the “One Big Beautiful Bill” should start to filter through and inflation is still well above the central bank’s target rate of 2%.
“These factors could discourage additional rate cuts if they spill over into stronger labour market conditions,” MUFG currency strategist Lee Hardman said.
EURO LIFTED BY RISE IN YIELDS
Beyond U.S. monetary policy, the euro edged up 0.1% to $1.1652, lifted by higher euro zone bond yields. German 30-year yields hit their highest since 2011 in early trading.
Unlike the Fed, the ECB is not expected to cut rates again in the coming year. Influential policymaker Isabel Schnabel on Monday said the central bank’s next move could even be a hike.
The Australian dollar briefly touched a high of $0.6649, the highest since mid-September, to last trade down 0.1% on the day at $0.6635.
The Reserve Bank of Australia meets on Tuesday after a run of hot data on inflation, economic growth and household spending. Futures imply the next move will be up and possibly as soon as May, leaving the focus on the post-meeting statement and media conference.
“We expect the RBA to be on an extended hold, with the cash rate to remain at its current level of 3.60%,” said analysts at ANZ in a note last week, revising previous expectations for a cut.
CANADA EXPECTED TO HOLD
The Bank of Canada is also widely expected to leave its interest rate on hold on Wednesday and a hike is fully priced by December 2026. The currency was steady at C$1.3819 on Monday, having hit 10-week highs on Friday following strong jobs data.
The yen , which has stabilised in this past week, having weakened sharply in November, was mostly steady at 155.44 per dollar, while sterling held around $1.3325 and the Swiss franc was a touch stronger at 0.804 francs.
