The dollar experienced a slight decline on Wednesday, influenced by softer U.S. economic data that reinforced market expectations for a rate cut by the Federal Reserve in December. This sentiment was further fueled by speculation regarding potential changes in leadership at the Fed. Investors are leaning towards the idea that the leading candidate for the next Federal Reserve chair may adopt a more dovish approach to monetary policy.
In contrast, the New Zealand dollar surged after the Reserve Bank of New Zealand lowered interest rates, as anticipated. However, the central bank also provided a surprisingly more hawkish outlook for future policy, prompting a movement in the kiwi, which rose by 0.75% to $0.5663. The Australian dollar also saw a brief uptick, gaining 0.14% to $0.6478, following domestic data that revealed an inflation rate above market expectations.
Recent U.S. economic releases have painted a picture of a slowing economy. Retail sales for September grew less than analysts had predicted, while producer prices met expectations. Additionally, consumer confidence in the U.S. declined in November amid growing concerns about job stability and household financial situations. With this backdrop, traders have increased bets on a potential Fed rate cut next month, with current market assessments indicating an 84% likelihood of a 25-basis-point reduction.
Carol Kong, a currency strategist at the Commonwealth Bank of Australia, noted that the recent data heavily supports arguments for a near-term rate cut by the Federal Open Market Committee (FOMC). The dollar weakened further against a basket of currencies, dipping 0.03% to a value of 99.82, following a more significant 0.3% drop in the previous session—the largest single-day fall in nearly three weeks.
Driving additional bearish sentiment for the dollar was a Bloomberg report suggesting that White House economic adviser Kevin Hassett is a leading contender for the next Fed chair. His views align with President Trump’s advocacy for lower interest rates. U.S. Treasury Secretary Scott Bessent indicated that Trump might make an announcement regarding his pick before Christmas, a development that could signal a continued push for easier monetary policy.
As the dollar fell, the battered yen gained slight reprieve, inching down only 0.1% to 156.24 per dollar but remaining well above last week’s ten-month low of 157.90. There is growing speculation among traders regarding potential intervention by Tokyo to stabilize the yen’s decline. With the upcoming U.S. Thanksgiving holiday expected to create thinner market liquidity, experts suggest this could be an opportune moment for Japanese authorities to act.
Reflecting on the potential for intervention, Kong emphasized, “The Thanksgiving holiday will mean thinner liquidity, and that could be an opportune time for Japanese authorities to step in, as the market impact would likely be more pronounced.” Overall, there is a heightened anticipation regarding Japanese officials’ comments and actions as the situation evolves.
