Investing.com – The US dollar slipped slightly Thursday on growing expectations of another rate cut by the Federal Reserve next week, while the euro edged higher ahead of the latest European Central Bank policy meeting.
At 04:50 ET (09:50 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower to 106.245.
Fed cut next week likely
The latest US consumer price index came in largely as expected on Wednesday, and while there is more inflation data due later in the session, in the form of November producer prices, expectations of an interest rate cut by the Federal Reserve next week have firmed.
“There were no real surprises in yesterday’s CPI data and the market has firmed up its view that the Fed can cut by 25bp next week. This move will be characterised as the Fed taking the opportunity to deliver less restrictive policy while it can,” said analysts at ING, in a note.
The Fed has cut interest rates by 75 basis points since September and markets are currently expecting another 25-bps cut at the December 17-18 meeting.
Euro awaits ECB decision; CHF falls after sharp cut
Much of the day’s attention is on the European market, with EUR/USD up 0.2% to 1.0516, ahead of Thursday’s policy-setting meeting by the European Central Bank, its final policy meeting of the year.
The ECB is widely expected to agree to another 25-bps rate cut, its fourth such cut this year, as the central bank struggles with an eurozone economy that is at risk of recession, and facing political instability at home and the prospect of a fresh trade war with the United States.
Alongside this decision, the ECB will unveil its latest quarterly projections on growth and inflation.
“We think there could be some downward revision to growth and perhaps even inflation forecasts today,” said ING. “Market pricing of the ECB already sees rates being cut into accommodative (sub-2%) territory next summer. But that pricing could drift even lower. Overall we remain bearish on EUR/USD and don’t see the case for the ECB to aggressively push back against current market pricing.”
GBP/USD traded 0.1% higher to 1.2761, while USD/CHF rose 0.2% to 0.8857 after the Swiss National Bank slashed interest rates by 50 basis points as it attempted to control the appreciation of the Swiss franc.
This marks the steepest decline in borrowing costs since the SNB’s abrupt emergency rate cut in January 2015, which was implemented when the bank abandoned its minimum exchange rate with the euro.
Chinese yuan looks to CEWC meeting
In Asia, USD/CNY rose 0.1% to 7.2675, with the focus on China’s Central Economic Work Conference (CEWC), a two-day meeting which is set to conclude later on Thursday.
The CEWC is a pivotal event as it discusses how China will address internal challenges like slowing growth, weak consumption, and external pressures such as trade tensions.
China’s top leaders and policymakers are weighing the option of devaluing the yuan in 2025 in anticipation of increased US trade tariffs when Donald Trump returns to the White House next month, Reuters reported.
USD/JPY gained 0.1% to 152.50, while the AUD/USD soared 0.7% to 0.6513 after data showed the country’s employment rose more than expected in November while unemployment unexpectedly fell.
