Anna 
On Wednesday, the dollar saw a marginal uptick as traders braced for the conclusion of a Federal Reserve policy meeting, eagerly anticipating insights into the potential timeline for the U.S. central bank to initiate interest rate reductions.
The British pound emerged as one of the day’s weakest performers, following data revealing a contraction in the UK economy in October. This development heightens the risk of a recession and poses challenges for the Bank of England (BoE) in maintaining its stance against rate cuts, a matter to be addressed in its upcoming Thursday meeting.
The U.S. dollar index, a measure against six major currencies, posted a 0.1% gain, reaching 103.86 as of 0540 GMT, recovering slightly from the preceding day’s 0.31% decline.
Analysts and investors await the updated economic and interest rate projections from Fed officials following their meeting. The prevailing expectation is that rates will remain unchanged. Key focus areas include whether Fed Chair Jerome Powell resists the notion of interest rate cuts in the first half of 2024 and insights from the central bank’s “dot plot,” revealing policymakers’ perspectives on the monetary policy outlook.
Despite indications of a soft landing, overnight data showed an unexpected rise in consumer prices for November. The futures market reflects traders’ expectations of up to four quarter-point rate cuts in the coming year, with the first potentially as early as May.
OANDA strategist Craig Erlam emphasizes the potential significance of the dot plot in shaping market expectations, suggesting that Powell’s comments may be overshadowed if the dot plot is projecting four rate cuts next year.
James Kniveton, senior corporate FX dealer at Convera, echoes the Fed’s data-dependent stance but notes the market’s anticipation of rate cuts being already factored in. He speculates that if the Fed pushes back on these expectations, the dollar index may have an opportunity to revert to the October range of 105-107.
Looking ahead, central banks in Europe, Norway, Switzerland, and the UK are set to meet on Thursday. The Norwegian central bank is viewed as the only one potentially considering a rate hike, while there is a risk that the Swiss National Bank could reduce support for the franc in currency markets.
The Bank of Japan (BOJ) convenes next week, prompting speculation about the potential end of its negative rate policy. Hopes of this occurring were momentarily dashed after reports from Bloomberg suggested BOJ officials see little need to rush to exit.
In the currency market, the dollar exhibited varied performance, rising against the yen, holding steady against the euro, and experiencing a slight increase against the pound. New Zealand’s dollar faced a 0.7% decline on softer-than-expected inflation data. China’s yuan maintained stability after a key leadership meeting, failing to announce substantial stimulus measures for economic growth.
Bitcoin, the leading cryptocurrency, eased 0.5% to $41,246, retracing from its recent 20-month high at $44,729 witnessed on Friday.
