The US Dollar held close to its highest level in three months on Tuesday as uncertainty within the Federal Reserve led traders to scale back expectations for rate cuts.
Meanwhile, the Japanese Yen rebounded slightly after nearing eight-month lows, following verbal interventions by Japanese authorities.
The Australian Dollar slipped 0.44% after the Reserve Bank of Australia (RBA) kept interest rates unchanged at 3.60%, as anticipated, but signalled caution over further easing due to elevated core inflation, resilient consumer spending, and a strengthening housing sector.
Market sentiment turned risk-averse, pressured by uncertainty over the direction of US interest rates as traders braced for a series of private-sector economic reports this week, with the federal shutdown removing key government data from view.
Federal Reserve policymakers also maintained their differing perspectives on the state of the economy and the potential risks, as the shutdown has halted the release of crucial economic indicators.
The Fed lowered rates last week, though Chair Jerome Powell said it could be the final cut for the year.
According to the CME FedWatch tool, markets now see a 65% probability of another cut in December, down from 94% just a week ago, Reuters reports.
This adjustment in expectations has strengthened the greenback. The Euro briefly dipped to a three-month low at $1.1498 before stabilising around $1.1525, while the British Pound was last trading near $1.3125.
The Dollar index, which tracks the US currency against a basket of six major peers, climbed above 100 for the first time since early August, before easing slightly to 99.822.
Furthermore, the Australian Dollar was trading at $0.6511 at the time of writing, with investors assessing the RBA’s policy outlook after the central bank raised its inflation forecasts.
The RBA now projects core inflation, measured by the trimmed mean gauge it closely monitors, to rise to 3.2% by year-end from the current 3%. This marks a significant upward shift from its earlier outlook, which anticipated inflation holding around 2.6% over the next few years.
With official US economic data unavailable, investors are turning to private-sector indicators such as the ADP jobs report to assess the economy’s condition.
On Monday, the Institute for Supply Management’s manufacturing survey revealed a bleak outlook for the sector, showing factory activity shrank for an eighth consecutive month in October as new orders stayed weak.