The Dollar moved toward its ninth consecutive decline on Wednesday as traders increased their bets on Federal Reserve rate cuts, driven by US economic data and rising expectations of a more dovish central bank.
Fed Governor Christopher Waller stated last week that the labour market is weak enough to warrant another 0.25 percentage point rate cut in December, while White House economic adviser Kevin Hassett has emerged as the leading candidate for the next Fed chair.
US President Donald Trump said he plans to announce his choice for Fed chair in early 2026.
If announced this early, the appointment would create a ‘shadow Fed chair,’ as current Fed Chair Powell’s term does not expire until May, say analysts. This may make it harder for the Fed to clearly convey its monetary policy and could cause some market confusion at a time when clarity is crucial.
On Wednesday, markets assigned an 87% probability of a rate cut this month, according to the CME Group’s FedWatch tool, up from 30% on 19th November.
With a December move now largely priced in, investors are turning their attention to the Fed’s subsequent actions, with markets currently pricing in a total of 88 basis points in cuts by December 2026, Reuters reports.
The Dollar index, which tracks the US currency against six other major currencies, fell 0.15% to 99.10, on track for an almost 9% drop so far this year.
Elsewhere, the Euro gained 0.11% to $1.1639 as investors kept an eye on developments in Ukraine peace talks, which could enhance energy security and reduce costs, providing support for the single currency.
However, the Kremlin reported on Wednesday that Russia and the US failed to reach an agreement on a potential peace deal to end the war in Ukraine following a five-hour meeting between President Vladimir Putin and Trump’s senior envoys.
Analysts noted that the Euro could gain further if a ceasefire or full peace agreement is achieved, especially if higher defence spending, which is expected to support the economy in the coming years, continues.
Eurozone inflation data on Tuesday slightly exceeded expectations, but market expectations for the policy rate remained unchanged, with the European Central Bank anticipated to maintain its rates through early 2027.