US dollar gains momentum amid shifting rate expectations

Key Movers

The US Federal Reserve delivered its second consecutive 25-basis-point “risk-management” rate cut on Wednesday, a move that came as no surprise to markets. The decision, aimed at supporting economic stability amid mixed global conditions, was largely priced in. Instead, investors focused on Chair Jerome Powell’s post-meeting remarks for clues about the Fed’s next steps. Powell adopted a cautious tone, making it clear that another rate cut in December was “not a foregone conclusion.” His comments suggested the central bank may now shift toward a more data-dependent approach, assessing incoming economic indicators before making further policy adjustments. This marked a subtle but important change in tone, hinting that the Fed may be nearing the end of its current easing cycle. The immediate market reaction reflected this sentiment. The US dollar extended its advance, buoyed by reduced expectations for additional near-term rate cuts. The US Dollar Index (DXY), which measures the Greenback’s value against a basket of six major currencies, climbed for the third consecutive session, hovering near a three-month high around 99.74. Treasury yields also edged higher, as investors recalibrated their forecasts for US monetary policy heading into year-end. Powell’s remarks reinforced growing confidence in the underlying strength of the US economy. Recent data has shown resilience in consumer spending and the labor market, even as inflation remains above the Fed’s 2% target. This combination of steady growth and sticky inflation supports the Fed’s more cautious stance, reducing pressure for aggressive rate cuts. Meanwhile, global investors are watching how diverging central bank policies could shape currency markets. With the Fed signalling a pause while other major central banks, such as the European Central Bank (ECB) and the Bank of Japan (BoJ), remain accommodative, the dollar is likely to retain its appeal as a relative safe haven. Looking ahead, traders will closely monitor upcoming US employment and inflation reports for further direction. Stronger-than-expected data could reinforce the view that the Fed will hold rates steady in December, potentially extending the dollar’s rally. Conversely, signs of economic softening might reopen the door for another cut—but for now, the Fed’s message is one of patience and prudence.