17 Dec 2024

The US Dollar is experiencing slight increases, approaching 106.90 during the early European session on Tuesday. The Federal Reserve is anticipated to reduce interest rates by 25 basis points on Wednesday, concluding its two-day meeting. Additionally, the US Retail Sales figures for November are scheduled for release later on Tuesday.

The US Dollar Index (DXY) has recorded slight increases, reaching approximately 106.90 against major currencies during the early hours of the European session on Tuesday. Market participants are anticipating the release of the US Retail Sales data for November, scheduled for later today. This week, focus will also shift to the interest rate decisions from the Federal Reserve (Fed), the Bank of Japan (BoJ), and the Bank of England (BoE).

It is expected that the Federal Reserve will implement its third interest rate cut during the meeting in December, reducing the overnight borrowing rate by 25 basis points to a range of 4.25% to 4.50%, down from the current range of 4.50% to 4.75%. Current market assessments indicate a nearly 95.4% probability of a 25 basis point reduction at the Fed's December meeting, a significant increase from the approximately 78% probability noted a week prior, as per the CME FedWatch tool.

Traders will be attentive to Fed Chair Jerome Powell's press conference and the Summary of Economic Projections (dot-plot) following the meeting. Any indications of a hawkish stance from the US central bank could bolster the US dollar against its competitors. Juan Perez, director of trading at Monex USA in Washington, D.C., remarked, "The U.S. dollar has been influenced by headlines not only regarding the Fed's actions but also concerning the perception of a hawkish cut."

On Monday, S&P Global released its preliminary report indicating that the US Composite PMI, which encompasses both services and manufacturing activity, registered a flash estimate of 56.6 for December, up from 54.9, marking the highest level in 33 months.

Furthermore, the Services PMI rose to 58.5 in December, compared to 56.1 in November, surpassing the market consensus of 55.7. Conversely, the Manufacturing PMI fell to 48.3 in December from 49.7 previously, which was below the anticipated 49.4. Traders will seek further insights from the US Retail Sales data later today, as weaker outcomes in stronger sales figures could negatively impact the US Dollar.