Dollar headed for its biggest monthly gain since September

by Jonathan Adams
Dollar

The dollar has added 2% this month as markets cut expectations on the speed and scale of rate cuts in the face of strong U.S. economic data and pushback from central bankers

The dollar headed for its biggest monthly gain since September and the yen for its sharpest decline in almost a year on Wednesday, as traders waited on a U.S. rates decision to round out January.

The dollar has added 2% against major currencies this month as markets cut expectations on the speed and scale of rate cuts in the face of strong U.S. economic data and pushback from central bankers.

In Japan, meanwhile, weak wage growth and cooling inflation dulled expectations for hikes, driving the yen down more than 4% on the dollar in January, its biggest decline since February 2023.

The dollar was stable at $1.0844 per euro and a bit softer at 147.23 yen early in the Asia day, with a summary showing discussion of ending negative interest rates at the BoJ’s January meeting helping support the yen.

The dollar index last stood at 103.36. Sterling hovered at $1.2698.

Later, the Fed is expected to hold U.S. interest rates steady but flag cuts are coming by dropping language suggesting it is considering further hikes.

Interest rate futures price a nearly 43% probability of a Fed rate cut in March, down from 73% at the start of the year.

The market reaction to the Fed meeting and its spillover onto most asset markets is likely to be largely captured by the impact on the probability of a rate cut at the March meeting, said Deutsche Bank’s chief international strategist Alan Ruskin.

The pricing tends to influence the euro/dollar rate, he added, with a 50-50 chance consistent with the euro at $1.087. A 100% chance of a rate cut would point to euro/dollar at $1.1080, while a rate cut that is fully ruled out for March would point the way to euro/dollar at $1.0660, he said.

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