The US dollar faced downward pressure on Wednesday as fresh economic indicators from the United States strengthened market expectations for an interest rate reduction by the Federal Reserve in December. Concurrently, the New Zealand dollar experienced a significant surge following a policy update from its central bank, while the Australian dollar also found support from domestic inflation data.
US Economic Data Fuels Rate Cut Expectations
Recent economic reports from the United States have painted a picture of a slowing economy, reinforcing trader bets on imminent monetary policy easing. Data released on Tuesday revealed that US retail sales increased less than anticipated in September, while producer prices aligned with forecasts. Adding to concerns, US consumer confidence declined in November as American households expressed worries about employment prospects and their financial situations.
According to the CME FedWatch tool, markets are now pricing in an 84% probability of a 25-basis-point rate cut at the Fed's December meeting. This significant shift in expectations has maintained consistent pressure on the greenback. Carol Kong, a currency strategist at Commonwealth Bank of Australia, noted that "the overnight data definitely paints a picture of a slowing US economy, and adds to the case for a near-term rate cut by the FOMC."
Antipodean Currencies Outperform
The New Zealand dollar emerged as the standout performer, jumping 0.75% to $0.5663 after the Reserve Bank of New Zealand delivered its expected rate cut but surprised markets with a more hawkish forward guidance than anticipated. The central bank dialed back its dovish outlook, suggesting a potentially less aggressive easing path ahead.
Meanwhile, the Australian dollar received a temporary boost, trading 0.14% higher at $0.6478 after earlier gaining about 0.3% following the release of domestic inflation data. Australia's consumer price index came in hotter than expected, reducing immediate pressure for further monetary easing from the Reserve Bank of Australia.
Global Currency Movements and Political Developments
The euro edged closer to the $1.16 level, last trading at $1.1567, benefiting from both dollar weakness and positive developments in Ukraine-Russia peace negotiations. Ukrainian President Volodymyr Zelenskiy stated on Tuesday that the country was prepared to advance a US-backed framework for ending the conflict and discuss disputed points with US President Donald Trump in talks that should include European allies.
Sterling remained relatively stable at $1.3166 ahead of a crucial budget announcement by British Finance Minister Rachel Reeves. The budget is expected to include tens of billions of pounds in tax increases, prompting increased hedging activity in the options market as traders seek protection against potential volatility. Thierry Wizman, Macquarie Group's global FX and rates strategist, suggested the currency could experience a relief rally if the budget is perceived as "fiscally responsible."
The dollar index, which measures the greenback against a basket of major currencies, declined 0.03% to 99.82, following a 0.3% drop in the previous session that marked its largest daily decline in nearly three weeks.
Potential Fed Leadership Change Adds to Dollar Pressure
Adding to the dollar's weakness, Bloomberg News reported that White House economic adviser Kevin Hassett has emerged as the frontrunner to become the next Federal Reserve chair. Like President Trump, Hassett has publicly expressed that interest rates should be lower than current levels under Fed Chair Jerome Powell's leadership. US Treasury Secretary Scott Bessent indicated there was a good chance Trump would announce his selection before Christmas.
Rodrigo Catril, senior FX strategist at National Australia Bank, commented that "Hassett is viewed as closely aligned with President Trump's preference for lower interest rates, and his appointment would likely reinforce the administration's push for easier policy."
The dollar's decline provided some relief to the Japanese yen, which had recently touched a 10-month low of 157.90 per dollar. The yen fell 0.1% to 156.24 on Wednesday, with traders remaining alert to potential intervention from Japanese authorities, particularly with the US Thanksgiving holiday on Thursday creating thinner market conditions that could amplify the impact of any official action.
