Swiss Rate Cut: DXY Steady, CHF Declines, EUR/USD Holds Firm
This week in Europe, while interest rate decisions are being made, the US dollar remains generally stable, with the euro showing slight gains ahead of the European Central Bank (ECB) monetary policy decision. A quarter-point interest rate cut is expected from the ECB.
The Swiss franc depreciated after the Swiss National Bank implemented a larger than expected interest rate cut of 50 basis points. The dollar index (DXY) continues to hover around the 106.5 level following the US inflation data that reinforced rate cut expectations for the Fed's upcoming meeting next week.
Interest rate decisions continue to guide the market. The US Consumer Price Index increased by 0.3% last month, aligning with expectations. This development suggests that a 25 basis point interest rate cut at the Fed meeting on December 17-18 is almost fully priced in. The ECB is also expected to announce a rate cut during its policy statement on Thursday and signal possible future rate reductions.
ING strategist Chris Turner stated that they do not expect the ECB to aggressively push back against market pricing. The euro rose slightly against the dollar, returning to the 1.05 range. Following the aggressive rate cut from the central bank, the Swiss franc depreciated against both the dollar and euro, reaching its lowest levels since the end of November.
The Japanese yen remains cautious amid rate cut expectations. After finding support at the 149 level against the yen this week, the dollar increased toward the 152 range. There is growing consensus that the Bank of Japan (BOJ) will likely keep interest rates unchanged this month. However, the markets are cautiously approaching this development, anticipating a rate hike in January.
Akira Moroga, chief market strategist at Aozora Bank, noted that the likelihood of the anticipated rate hike in December not occurring has led to a rise in the yen against the dollar. Investors are now focused on potential developments in January.
As expectations for a Fed rate cut strengthen, stock markets have increased, and the euro is holding firm. Ahead of the European Central Bank's (ECB) monetary policy decision, the euro showed slight gains. In the European equity market, the STOXX 600 index moved into positive territory, while the Swiss stock market exhibited sharp gains following the SNB's interest rate decision. Meanwhile, US futures dipped slightly today. In yesterday's trading, the tech-heavy Nasdaq rose 1.8%, surpassing the 20,000 level for the first time.
Following the US CPI, growing hopes among investors for rising yields towards the end of the year positively impacted risk appetite. The likelihood of a quarter-point cut at the Fed's meeting on December 18 has nearly reached 100%.
After testing below the 1.05 level once again yesterday, the euro started the new day with buying interest, returning to the 1.05 range with a 0.2% increase. A 25 basis point cut is expected from the ECB today, with investors turning their attention to Lagarde. Amid political instability in France and Germany and tariff risks from the new US administration led by Donald Trump, the views of ECB President Christine Lagarde regarding growth and inflation outlook are keenly awaited.