The Dollar Weakens as Fed Signals End of Rate Hike Cycle
The dollar faced downward pressure on Thursday following the Federal Reserve’s latest economic projections, which indicated that the interest-rate hike cycle has come to an end and lower borrowing costs are expected in 2024. This led to a surge in both the euro and Japanese yen, with the European Central Bank (ECB) preparing to announce its policy decision and the Bank of Japan coming up next week.
Fed Chair Jerome Powell stated at the Federal Open Market Committee (FOMC) meeting that the tightening of monetary policy is likely over, with a discussion of cuts in borrowing costs on the horizon. The majority of policymakers projected that borrowing costs would decline in 2024. This development provides clarity for markets, resulting in a risk-on sentiment.
Market focus now shifts to upcoming central bank decisions, including those by the ECB, Bank of England (BoE), Norges Bank, and Swiss National Bank. The ECB is expected to maintain steady rates, and attention will be on forecasts for GDP and inflation.
Impact on Currencies
The U.S. dollar index, which measures the greenback against a basket of currencies, dipped to 102.77 overnight before reaching 102.87. Markets are now pricing in around a 75% chance of a rate cut in March. The euro remained mostly flat at $1.0882 after experiencing significant gains, while sterling was trading at $1.2623.
The yen strengthened significantly against the dollar, reaching around 142.80 yen per dollar after the greenback’s decline. Expectations for a potential end to negative interest rates by the Bank of Japan (BOJ) caused the yen to surge initially but have since diminished due to reports suggesting that BOJ officials see no rush for policy changes.
Outlook and Bitcoin Performance
The upcoming central bank decisions and the Fed’s stance on interest rates are likely to impact currency markets. The Norwegian central bank is considered a potential candidate for rate hikes, while there is speculation about the Swiss National Bank reducing support for the Swiss franc.
In the world of cryptocurrencies, bitcoin experienced an increase and was valued at $42,904.
Hot Take: Dollar Weakens as Fed Signals End of Rate Hike Cycle
The Federal Reserve’s indication that the interest-rate hike cycle has come to a close and lower borrowing costs are expected in 2024 has put pressure on the dollar. This news led to a surge in other major currencies like the euro and yen. While the focus shifts to upcoming central bank decisions, including those by the ECB and BOE, market attention will remain on the impact of these developments on currency markets. Additionally, bitcoin continues to perform well amid these changes.
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