Dollar Drops Before Fed, Euro Volatility Stays High
The dollar dropped versus all of its Group-of-10 peers amid profit taking ahead of the Federal Reserve’s policy decision later Thursday.
The Bloomberg Dollar Spot Index drops 0.3%, paring Wednesday’s 1.3% gain, the most since September 2022.
While traders take profit on dollar longs, price action doesn’t suggest a change in direction of travel as it’s more about short-term positioning, according to Europe-based traders.
The yield on policy sensitive 2-year Treasuries is down two basis points at 4.24%; it rallied yesterday to around 4.31%, this highest since July 31.
The Fed is expected to cut its key policy rate by 25 basis points, as money markets assign two-in-three chance for another one in December.
Chair Jerome Powell will then likely field a barrage of questions about what Trump’s return to the White House will mean for growth, inflation and borrowing costs as investors position for a slower pace of rate cuts.
EUR/USD halves a 0.4% advance to trade at 1.0754; leveraged offers extend all the way up to 1.0820-50: traders.
Overnight volatility rises as much as 256 basis points to 16.40% for a breakeven of around 90 dollar pips; this is the highest reading on Fed-decision day since May 2023.
German opposition leader Friedrich Merz said Chancellor Olaf Scholz should submit to a vote of confidence by early next week at the latest, paving the way for fresh elections as soon as mid-January.
Aside the FOMC, policy meetings Thursday include decisions from Riksbank, Norges Bank and the Bank of England.
EUR/SEK drops 0.3% to 11.6181; Riksbank cut borrowing costs by a half point for the first time in a decade, matching market expectations, and said that further moves lower in December and in the first half of 2025 are possible
EUR/NOK down 0.8%, most in three months on a closing basis; it touches 11.7843, lowest since Oct. 18.
Norway’s central bank kept borrowing costs at the highest level in almost 16 years and repeated no imminent plans for easing due to risks posed by a weak krone and higher business costs.
NOK/SEK up 0.7% to 0.9866, highest since July 31.
GBP/USD rises 0.3% to 1.2912, versus 1.2947 day high; the BOE is likely to cut interest rates by 25 basis points for only the second time this year in a decision that will be overshadowed by the fallout from the UK budget and Trump’s win.
USD/JPY falls as much as 0.6% to 153.65 before offshore desks step in to fade the dip; Japan’s chief currency official Atsushi Mimura said authorities will take appropriate action against any excessive currency moves after seeing one-sided, sudden moves.
AUD/USD rallies 1% to 0.6638, erasing Wednesday’s drop, while NZD/USD is up 0.9% to 0.5992; the pair advanced as local exporters hedge out of Trump-driven strength in the greenback, according to Asia-based FX traders.
Source : Bloomberg
