The US dollar is expected to experience weakness in the final month of the year due to market anticipation of a Federal Reserve interest rate cut. The Fed’s Federal Open Market Committee (FOMC) is set to meet on December 10, and analysts believe that a rate cut is likely. This expectation is driven by a softening labor market, weaker demand, and tightening credit conditions.
Recent comments from US Labor Secretary Lori Chavez-DeRemer and Fed Presidents John Williams and Mary Daly suggest that the risks associated with a slowing labor market outweigh the need to maintain high interest rates. As a result, the market is heavily pricing in a rate cut, which is putting pressure on the US dollar.
Additionally, the Fed is scheduled to end its quantitative tightening program on December 1. This program, which involves allowing maturing securities to roll off the Fed’s balance sheet, has been in place for some time. However, the Fed will now begin reinvesting the proceeds from maturing securities, rather than allowing them to roll off. This change in policy is also expected to contribute to a weaker US dollar.
The combination of a potential rate cut and the end of quantitative tightening is likely to weigh on the US dollar in the short term. As a result, the currency is expected to experience weakness in the lead-up to the FOMC meeting and potentially beyond. Overall, the market is positioning for a dovish pivot from the Fed, which is likely to have significant implications for the US dollar and other financial markets. With the year coming to a close, the US dollar’s performance will be closely watched by investors and traders, who will be looking for any signs of a shift in the Fed’s monetary policy stance.