US dollar gains momentum as Fed signals rates to remain high

The US dollar has picked up steam on Wednesday following the release of the Federal Reserve meeting minutes which indicated interest rates would likely stay elevated for some time, even though the rate-hike cycle seems to have ended.

The minutes showed Fed policymakers unanimously agreed rates should be maintained at current levels. Officials stated they would only raise interest rates if progress on controlling inflation falters.

Markets have priced in around a 27% chance of a rate cut in March 2024. Analyst Niels Christensen of Nordea stated “Almost four rate cuts are fully priced for next year and that looks very aggressive.”

The dollar index, measuring the greenback against other major currencies, rose 0.2% to 103.78, moving away from its lowest level since August. The index remains down 2.6% in November, on pace for its worst monthly decline in a year.

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High US Treasury yields that have supported the dollar have also dropped from multi-year highs in October. This follows a slowdown in US inflation and ramped-up bets that the Fed is done with rate hikes for now.

Sterling slipped 0.2% to $1.2518, not far from the two-month peak of $1.2558 reached on Tuesday. Markets await UK Finance Minister Jeremy Hunt’s Autumn budget statement, which may include tax reductions.

In commodities, spot gold prices held steady at around $2,000 per ounce.