Dollar holds steady on Monday

The dollar index held at 98.6 on Monday after a modest gain last week, with trading expected to be quiet this week due to the Christmas holiday and thinner liquidity conditions.

Investor attention will mainly be on the second estimate of GDP for the third quarter, set for release on Tuesday, which may offer further insights into the economy’s underlying momentum and the Federal Reserve’s interest rate path heading into 2025.

Traders currently anticipate that the Fed could deliver two 25bps rate reductions next year, amid growing evidence of easing inflation pressures and a gradually weakening labor market.

Meanwhile, Federal Reserve Bank of Cleveland President Beth Hammack said on Sunday that policy is well-positioned to pause and assess the impact of the cumulative 75bps of rate cuts already delivered, reinforcing expectations that policymakers may adopt a more data-dependent approach in coming months.

Externally, traders are also monitoring the Japanese yen after Bank of Japan Governor Kazuo Ueda maintained a cautious stance following a rate hike last Friday, with markets weighing the likelihood of further policy normalization against risks to domestic growth and global financial stability.