The dollar is taking a moment to catch its breath, with all eyes on the Fed. A crucial turning point for investors?
While the Aussie dollar dipped after a GDP miss, the dollar-yen pair steadied at 155.70, with a potential rate hike on the horizon. But here's where it gets controversial: the U.S. is expected to cut rates next week, a move that could significantly impact the greenback.
During morning trade, the Australian dollar reached a three-week high of $0.6576, only to retreat slightly after GDP data fell short of expectations. Meanwhile, the euro surpassed its 50-day moving average, driven by slightly higher-than-expected inflation in the euro zone, and traded at $1.1629 early in the Asian session.
However, these moves were overshadowed by Bitcoin's impressive rebound, which boosted risk appetite across the market. The largest cryptocurrency by market value surged approximately 6% to surpass $91,000 overnight.
The Japanese yen remained stable at 155.70 per dollar, with increasing bets on an interest rate hike this month. In contrast, the U.S. is pricing in an 85% chance of a rate cut at the Federal Reserve's meeting next week.
Sterling and the Swiss franc maintained their positions at $1.3222 and 0.8022 per dollar, respectively, while the New Zealand dollar hovered at $0.5730.
Looking ahead, expectations of approximately 90 basis points in U.S. rate cuts before the end of 2026, coupled with the potential nomination of White House economic adviser Kevin Hassett as Fed chair, are causing some investors to turn bearish on the dollar. Hassett, a former senior economist at the Fed, is seen as aligned with the Trump administration's preference for faster interest rate reductions.
Deutsche Bank strategist Tim Baker predicts a potential 2% drop in the dollar through December, a month that has historically seen the currency decline over the past decade. Analysts at Singapore's OCBC also anticipate a weaker dollar into 2026 as U.S. rate cuts narrow the gap with global interest rates.
"The thesis is straightforward," explains Spectra Markets President Brent Donnelly. "The market is long on dollars with a Fed chair who may run a hot economy, an already challenging fiscal situation, high nominal rates set to fall, a seasonal tendency for USD weakness, and interest rate differentials at their widest.
"I'm going long on EUR/USD and NZD/USD."
And this is the part most people miss: the potential impact of a new Fed chair on the dollar's trajectory. What do you think? Will the dollar continue its downward trend, or is there a counterargument to be made? Share your thoughts in the comments!
