The dollar has reached a four-month low following the Federal Reserve’s announcement that its interest-rate hiking cycle has come to an end and lower borrowing costs are expected in 2024. In Europe, the euro maintained its gains after the European Central Bank confirmed that policy rates would remain restrictive for as long as necessary. The pound also rose after the Bank of England made the decision to hold interest rates. The Norwegian crown strengthened after a surprise rate hike, while the Swiss franc remained steady after the Swiss National Bank maintained rates.
The Federal Reserve’s Chair, Jerome Powell, stated during Wednesday’s Federal Open Market Committee (FOMC) meeting that the historic tightening of monetary policy is likely over. The Fed’s projections indicated potential rate cuts of 75 basis points next year. This unexpected dovish tone from the Fed pushed the U.S. dollar index to its lowest level since August 10th at 102.27, down 0.5% at 102.37.
In Europe, the European Central Bank kept interest rates at a record high and gave no indication regarding a potential easing of policy, despite market expectations of rate cuts in early 2020. The euro maintained its gains against the weaker dollar, rising 0.4% to $1.0922. The Swiss National Bank held rates steady at 1.75%, and the franc remained weaker against the euro. The Norwegian crown strengthened against both the euro and the dollar after the Norges Bank unexpectedly raised rates by 25 basis points to 4.5%.
Following the Bank of England’s finely balanced decision, the pound rose 0.8% against the dollar to reach a two-week high of $1.2725. The BoE voted 6-3 to leave interest rates at 5.25%.
Meanwhile, the Japanese yen continued to strengthen against the dollar, reaching its highest level since July 31st at 140.95 per dollar. Expectations of the Bank of Japan (BOJ) ending negative interest rates have been dampened, although slight changes to the BOJ’s statement, such as indicating a willingness to ease further if necessary, could have a positive effect on the yen.
The Australian dollar hit a more than four-month high at $0.6728 following unexpected positive domestic net employment data. The New Zealand dollar also rose more than 1% against the dollar, despite an unexpected contraction in the New Zealand economy during the third quarter.
Overall, the markets responded to the Federal Reserve’s dovish stance, with the dollar weakening and speculation of multiple rate cuts in the upcoming year. European central banks offered a mixed outlook, maintaining higher interest rates, while the Bank of England chose to leave rates unchanged. As market dynamics continue to shift, traders will closely monitor central bank decisions and economic indicators to determine future currency movements.
