In a tight trading range, the dollar maintained its position on Tuesday as investors eagerly awaited the Federal Reserve’s imminent decision following their two-day meeting and the impending release of the latest U.S. jobs data.
Analysts widely anticipate the Fed to maintain steady rates during Wednesday’s announcement. Despite a sharp decline from 88.5% a month ago, the probability of a March rate cut currently stands at 41.7%. This shift is attributed to a notable improvement in U.S. economic data.
Some experts speculate that the Fed might consider a rate cut to prevent a substantial gap between inflation and the fed funds rate, potentially leading to tighter financial conditions than desired.
Dollar Falls Against the Euro But Rallies Against the Yen
The dollar, which had weakened after Fed Chair Jerome Powell hinted at an easing cycle in December, has since exhibited signs of recovery. The dollar index, measured against six major currencies, remained relatively flat at 103.40, reflecting stability.
The euro experienced a marginal increase after data indicated the eurozone economy avoided contraction in the fourth quarter of 2023, despite a shrinkage in the German economy. The euro stood at $1.0843, up by 0.12%.
Although the eurozone’s GDP showed stagnation in Q4, the dollar has witnessed a 1.75% gain against the euro this year, fueled by expectations of superior U.S. economic performance compared to the eurozone.
Market expectations suggest the European Central Bank might enact rate cuts in April, contributing to the dollar’s overall strength.
Against the yen, the dollar saw a 0.10% increase at 147.63 yen as the Japanese currency weakened amid a growing risk appetite.
The dollar’s future trajectory hinges on the Federal Reserve’s statement and the impending U.S. jobs report for January, scheduled for release on Friday. Analysts predict an addition of 180,000 non-farm jobs, a slight dip from December’s 216,000.
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