The euro remained anchored near familiar territory at $1.1652, continuing a pattern of tight trading that has persisted since mid-year. The Japanese yen, which had weakened through much of November before finding firmer footing, inched up to 155.17 per dollar.
A “Hawkish Cut” in Focus
Market analysts anticipate that if the Fed does reduce rates, it may do so with messaging that tempers expectations for further easing. Such a “hawkish cut”—where the statement language, economic projections, and Chair Jerome Powell’s press conference collectively emphasize caution—could limit downside pressure on the dollar.
Expectations are complicated by signs of division within the Federal Open Market Committee. Several policymakers have already hinted at their positions, raising the likelihood of dissenting votes. According to BNY’s head of markets macro strategy, Bob Savage, both hawkish and dovish members may break from the majority. Notably, three or more dissents in a single meeting have been rare over the past three decades, last occurring in 2019.
Asia-Pacific Currencies Quiet Ahead of Policy Announcements
The Australian dollar hovered just below last week’s two-and-a-half-month high at $0.6642. Its recent strength reflects shifting market expectations, with investors increasingly doubtful about near-term rate cuts amid firm inflation and solid economic data.
The Reserve Bank of Australia meets Tuesday, and while the data flow has been strong, economists at ANZ expect the central bank to maintain its policy rate at 3.60% for an extended period. The bank recently abandoned its earlier forecast for a cut, pushing expectations further into the future.
New Zealand’s dollar held steady at $0.5784, just shy of a key resistance level at $0.58.
North American and European Moves
The Canadian dollar paused after rallying to a 10-week high on Friday, buoyed by robust labour market figures. The Bank of Canada is widely projected to hold rates unchanged this week, though markets now fully price in a hike by late 2026. On Monday, the loonie traded slightly weaker at C$1.3822 per U.S. dollar.
Switzerland’s franc edged 0.1% stronger to 0.8034 per dollar. With inflation remaining subdued, the Swiss National Bank is expected to keep its policy rate at 0% for the foreseeable future.
The British pound traded narrowly above its 200-day moving average at $1.3339, reflecting a wait-and-see stance as investors monitor global rate signals. Meanwhile, China’s yuan held steady at 7.068 to the dollar amid ongoing policy stability.
Latin America: Brazil Holds Steady
In Brazil, the central bank is also expected to leave interest rates unchanged at 15%, though policymakers may use this month’s meeting to hint at potential cuts next quarter. Markets anticipate that cooling inflation could give the bank room to ease later in the year.