Greenback weakens ahead of Fed rate decision

Story link: Greenback weakens ahead of Fed rate decision

Much of the action on global currency markets on Tuesday seemed to be driven by the expectation that the US Federal Reserve will cut interest rates later in the day, even though analysts today don’t give the prospect of a rate cut as much of a probability as they did on Monday.

While on Monday interest-rate futures on the Chicago Board of Trade predicted a 72 percent chance that the Fed will cut interest rates by a quarter of a point, that had dropped to a 64 percent chance today.

The expectation that the Fed will cut rates not only today but again when it meets at the end of January sent the US dollar lower against the yen and other currencies.

By early afternoon trade in New York, still before the Fed’s announcement on interest rates, it took ¥111.7450 to buy a dollar, while the dollar traded at $2.0384 to the pound and at $1.4702 to the euro.

The pound was helped by a decrease in the goods trade gap, with a decline to £7.1 billion in October from £8 billion in September according to the Office of National Statistics.

It took ¥227.7810 to buy a pound in New York trade, while the euro traded at €1.3864 to the pound.

The euro weakened early in the session on a decrease in investor confidence in Germany, but made a comeback versus the US dollar on the interest rate expectations.

Meanwhile, the Swiss franc continued to see declines as investors used the currency to fund risky carry trades.

In early afternoon trade in New York the Swiss franc was trading at SFr1.1331 to the greenback, at SFr1.6660 to the euro and at 2.3098 to the pound.