The dollar index edged up to 108.2 on Wednesday, rising for a fourth consecutive session, as traders prepared for the Federal Open Market Committee (FOMC) decision later in the day.
DXY edges up ahead of Fed
The Federal Reserve is widely expected to hold interest rates steady, signaling a pause in its rate-cut cycle, as the central bank takes a cautious stance amid ongoing inflationary pressures and mixed economic data. Market attention is now focused on any statements from the Fed regarding President Trump's policies, particularly how they might influence inflation, fiscal policy, and broader economic growth.
Will Fed discuss trade measures?
Investors are keen to hear if the Fed provides any insights into how potential trade measures or regulatory changes under the Trump administration might affect the U.S. economy, especially given the uncertainty surrounding trade relations with major partners.
How many cuts in 2025?
In its December meeting, the Fed had signaled that it anticipates only two rate cuts in 2025, a more gradual approach compared to the earlier aggressive easing cycles. As a result, markets have fully priced in these two 25-basis-point cuts for 2025 but do not expect the first move to take place until June, reflecting cautious optimism that inflationary pressures will be managed while economic growth remains resilient. Despite this expectation for a relatively muted easing path, the U.S. dollar has strengthened across the board, driven by broader risk aversion and expectations of a relatively more stable U.S. monetary policy compared to other central banks.
Dollar up against major counterparts
The greenback saw its largest gains against the Australian dollar, euro, and British pound, benefiting from diverging economic outlooks and the anticipation of a steady Fed policy while other central banks may have more room to ease their rates. This strengthening trend has supported the dollar's status as a safe-haven currency, as investors seek stability amid global uncertainties.
