TOKYO: The dollar remained near a four-month high on Thursday as markets continued to absorb the impact of Republican Donald Trump’s victory in the US presidential election, while investors focused on upcoming central bank decisions, particularly the Federal Reserve.
The Fed is anticipated to reduce interest rates by 25 basis points later in the day, with investors closely watching for any indication that the central bank might skip a rate cut in December.
Last week’s October jobs report, which came in weaker than expected, raised concerns about the strength of the labor market, though the data was affected by recent hurricanes and labor strikes.
The Fed’s decision follows Trump’s election win, which has sparked speculation about whether the central bank might slow down or reduce the pace of future rate cuts.
Despite Trump’s victory generating a “market-pumping” reaction, senior market analyst Matt Simpson of City Index noted “mixed feelings” beneath the surface. While US equities hit record highs and the yen weakened, suggesting support for Trump, a stronger dollar and rising US Treasury yields pointed to expectations of a less dovish Fed in the future.
Trump’s policies on immigration, tariffs, tax cuts, and deregulation could drive growth and inflation, limiting the Fed’s room to cut rates. A Republican clean sweep could lead to larger legislative changes, potentially triggering bigger currency moves, although control of the House of Representatives remains uncertain.
Following the election, markets now see a 70% chance of a rate cut by the Fed next month, down from 77% earlier in the week, according to the CME Group’s Fed Watch Tool.
US Treasuries fell sharply on Wednesday, pushing yields to multi-month highs. The dollar index, which tracks the greenback against six major currencies, edged down 0.05% to 105.06, after reaching a high of 105.44 in the previous session, its strongest level since July 3.
Any less dovish rate cut from the Fed could prompt traders to scale back expectations for a December cut, causing both the dollar and yields to rise further, Simpson added.
The yen gained 0.22% to 154.30 per dollar after reaching its lowest level against the dollar since July 30 at 154.7 on Wednesday.
Ahead of the Fed’s decision, the Bank of England is expected to cut rates for the second time since 2020, but investors are keen to see whether it will signal further moves after the government’s budget, which could raise inflation.
The Riksbank is expected to ease by 50 basis points, while the Norges Bank is likely to hold steady.
Elsewhere, the Australian dollar was flat at $0.6568, consolidating after falling to a three-month low of $0.6513 on Wednesday. The New Zealand dollar traded at $0.5944, up 0.08%.
