The U.S. dollar was little changed on Tuesday as investors awaited the Federal Reserve’s final policy decision of the year, while the Australian dollar firmed after a more hawkish tone from the Reserve Bank of Australia.
At 04:00 ET (09:00 GMT), the Dollar Index — a measure of the greenback against six major peers — edged slightly lower to 99.042.
Markets brace for a potential “hawkish” cut
The Fed begins its two-day policy meeting later today, and markets broadly expect a 25-basis-point rate cut when Wednesday’s decision is released.
Fed funds futures put the likelihood of a reduction at just under 90%, according to CME’s FedWatch.
Still, significant uncertainty remains over what the Fed may signal regarding next year’s policy path, particularly with the announcement of a new Fed Chair expected soon.
As ING analysts noted, “There are now high expectations of a ’hawkish cut’ at Wednesday evening’s FOMC decision. With market pricing of further Fed easing still vulnerable, we suspect the dollar’s downside is limited into the Fed meeting.”
The JOLTS job-openings report, due later Tuesday, is unlikely to play a major role in the Fed’s current deliberations given its October reference period.
Euro picks up after German export surprise
The euro edged higher, with EUR/USD rising 0.1% to 1.1645, after Germany posted a small but unexpected increase in exports. Shipments grew 0.1% month-on-month in October, defying forecasts of a 0.5% decline.
The gain was driven by EU trade, while exports to China and the U.S. fell sharply. The data adds to signs that the eurozone’s largest economy may be stabilizing.
However, ING warned that “failure to pass a social security budget in the French parliament today would be greeted negatively by markets and could re-insert some political risk back into the euro.”
GBP/USD rose 0.2% to 1.3348 ahead of Friday’s GDP release and next week’s Bank of England meeting.
Aussie dollar climbs after RBA signals inflation risks
In Asia, the Australian dollar strengthened, with AUD/USD up 0.3% to 0.6638. The Reserve Bank of Australia held its cash rate at 3.60%, as widely anticipated, but delivered a firmer message on inflation.
The RBA said inflation risks had “tilted to the upside” and warned that stronger-than-expected domestic demand could add pressure on capacity — prompting policymakers to remain cautious and assess how persistent price pressures may be.
The central bank’s previous easing cycle now appears on hold for the time being, with core inflation still sticky.
Elsewhere, USD/CNY dipped slightly to 7.0702, while USD/JPY climbed 0.3% to 156.29 after a powerful 7.5-magnitude earthquake struck northeast Japan, triggering evacuations and initial tsunami warnings that were later downgraded.
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