Dollar Stays Firm Despite Surge in Rate-Cut Expectations

The U.S. dollar held steady on Tuesday, even as investors sharply increased their expectations for a potential Federal Reserve interest rate cut in December. Dovish comments from multiple Fed policymakers have pushed traders to anticipate easing sooner than previously forecast, though the dollar has so far remained resilient.

On Monday, Federal Reserve Governor Christopher Waller said the U.S. job market had weakened enough to justify another quarter-point cut next month. However, he noted that decisions beyond December hinge on several key economic indicators that were delayed by the now-ended U.S. government shutdown, the longest in American history.

His remarks followed similar comments from New York Fed President John Williams, contributing to a dramatic shift in market pricing.

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Traders Rapidly Reprice Path for U.S. Rates

According to CME’s FedWatch tool, markets now assign an 81% probability of a December rate cut—nearly double the 42% likelihood seen just a week ago. The shift underscores how the absence of fresh economic data has complicated market expectations.

Despite that, the dollar has not weakened as much as analysts expected. The euro ticked up to $1.1530, while sterling rose roughly 0.2% to $1.3115. The U.S. dollar index held at 100.13, preserving gains accumulated last week when it advanced nearly 1%.

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Analysts Warn Dollar May Be Overvalued

Francesco Pesole, currency strategist at ING, noted that year-end portfolio rebalancing ahead of Thanksgiving may be limiting pressure on the dollar. Still, he warned that the greenback may be too strong relative to underlying short-term rate differentials.

Unless markets shift back toward a more hawkish view of the Fed, Pesole said the dollar faces “material downside risks.”

Fed officials remain divided on the outlook for monetary policy, and a complete economic picture will only emerge once delayed data begins flowing again.

Investor sentiment has also been supported by improved U.S.-China relations, after President Donald Trump said ties were “extremely strong” following a call with Chinese President Xi Jinping.

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Yen Remains Near 10-Month Low as Traders Watch for Intervention

The Japanese yen continues to trade near levels that have historically triggered government intervention, standing at 156.51 per dollar, just shy of last week’s 10-month low of 157.90.

The yen has weakened nearly 10 yen since early October, a slide that began after Sanae Takaichi, known for her more accommodative fiscal stance, became Japan’s prime minister.

Markets remain alert for any signs of the Bank of Japan stepping in to stabilize the currency. Pesole said thin holiday trading conditions around Thanksgiving may create favorable conditions for intervention—especially if a market-driven correction in USD/JPY emerges.

Upcoming U.S. economic releases, including retail sales and producer price index data, may provide catalysts for volatility later in the day.

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Other Global Market Movers

• The New Zealand dollar slipped to $0.5595, having fallen more than 2% this month ahead of an anticipated rate cut from the RBNZ.
• The Australian dollar edged lower to $0.6453, down 0.15% on the day.
• In cryptocurrency markets, bitcoin dropped 1.4% to $87,519.91 and is down almost 20% this month, remaining under sustained pressure.