Anna 
The U.S. dollar maintained its position near a two-week high on Wednesday, contrasting with a weaker euro across the board, as markets increasingly anticipate potential interest rate cuts by the European Central Bank (ECB) in March.
The euro dipped 0.1% against the dollar, reaching $1.0783, touching a three-week low of $1.0775, reflecting a shift in rate expectations following subdued economic data and dovish commentary from central banks.
The single currency also experienced declines, reaching a three-month low against the pound, a five-week low against the yen, and a 6-1/2 week low against the Swiss franc.
Niels Christensen, Chief Analyst at Nordea, noted, “The story in currency markets is mostly about a softer euro. Yesterday’s comments from ECB’s Schnabel supported the market view of early rate cuts.”
Influential ECB policymaker Isabel Schnabel suggested on Tuesday that further interest rate hikes could be reconsidered due to a “remarkable” fall in inflation.
Market sentiment now indicates an 85% likelihood of the ECB cutting interest rates at the March meeting, with nearly 150 basis points worth of cuts priced by the end of next year.
Next week, the ECB is expected to keep interest rates steady at the current record high of 4%. Similarly, the Federal Reserve and the Bank of England are likely to maintain their rates next Wednesday and Thursday, respectively.
As Fed officials enter a blackout period ahead of the Dec. 12-13 meeting, attention turns to the updated projections on rates in 2024.
Traders, according to CME’s FedWatch tool, have priced in a 60% chance of the central bank cutting rates in March, along with at least 125 basis points of cuts next year.
Aninda Mitra, Head of Asia Macro and Investment Strategy at BNY Mellon Investment Management, cautioned against overly aggressive rate cut expectations, suggesting a potential market correction if the Fed emphasizes a more cautious stance.
A Reuters poll of foreign exchange strategists indicates that widely anticipated Fed rate cuts will likely weaken the dollar’s hold on other G10 currencies in the coming year.
The dollar index, measuring the currency against six other majors, showed little change at 103.94.
In Asia, the focus was on China, where Moody’s cut the credit outlook. The offshore Chinese yuan rose 0.11% to $7.1661 per dollar. Major state-owned Chinese banks reportedly intensified U.S. dollar selling following the Moody’s statement on Tuesday.
In other Asian currencies, the Japanese yen remained flat at 147.14 per dollar. The Australian dollar rose 0.4% to $0.6581, and the New Zealand dollar rose 0.5% to $0.6157.
Bitcoin, in the cryptocurrency market, eased 0.5% to $43,868 after surpassing $44,000 earlier in the session. The world’s largest cryptocurrency has seen a 150% gain this year, buoyed by optimism regarding the potential approval of exchange-traded spot bitcoin funds (ETFs) by a U.S. regulator.
