Investing.com – The US dollar slipped slightly on Thursday, but remained near two-year highs after the Federal Reserve signaled a slower pace of rate cuts in 2025, while sterling bounced ahead of its the Bank of England's latest policy meeting.
At 05:05 ET (10:05 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading 0.1% lower at 107.670, after climbed to a two-year high on Wednesday.
Dollar slips from two-year high
The dollar rose on Wednesday after it downgraded its outlook for interest rate cuts in the coming year, after delivering the expected rate cut.
US central bank policymakers now only see an additional 50 basis points of easing in 2025, instead of the 100 bps indicated in previous forecasts in September.
“We believe this hawkish reframing of the Fed's communication will be the basis for sustained dollar strengthening into the new year,” analysts at ING said in a note.
“Markets are fully expecting a hold in January and 11bp is priced in for March. If indeed the dot plot acts as a gauge for rate expectations for the next three months, the bar for a data surprise to seriously threaten the dollar's massive rate gains is set higher. “
The slate of economic data centers around the release of the third quarter, which is expected to show that annual growth fell to 2.8% in the quarter, down from 3.0% in the previous quarter.
Sterling bounces ahead of BOE meeting
In Europe, it traded 0.7% higher to 1.2662, bouncing off Wednesday's three-week low ahead of the Bank of England policy setting meeting later in the session.
Rates are widely expected to remain unchanged, continuing their cautious approach to easing monetary policy while inflationary concerns remain.
“The focus will be on any changes to forward-looking language and the split of the vote (which we expect at 8-1 cut). There is no press conference scheduled for this meeting,” ING said.
“Our view is that the BoE will try to make this news a non-event, offering cautious signals for further tapering down the road but indicating stability in inflation and services wages. “
changed so far +0.0415% compared to yesterday.
It cut its key rate last week for the fourth time this year, and is likely to cut interest rates further in 2025 if inflation concerns subside.
“If the incoming data continues to confirm our baseline, the path forward is clear and we expect to lower interest rates further,” ECB President Christine Lagarde said in speech earlier this week.
Inflation in the euro area was 2.3% last month and the ECB expects it to stabilize at its 2% target next year.
Yen was falling after BOJ kept rates unchanged
In Asia, it rose 1.5% to 157.13, jumping above 155 for the first time since the end of November, after the levels held steady and showed a cautious outlook for 2025.
The BOJ's decision disappointed some traders who were holding out for a hike in December. The central bank had raised rates twice this year in a historic pivot away from ultra-tight policy.
rose 0.3% to 7.3078, with the pair climbing to its highest level since September 2023. The yuan was weighed down by expectations of easier monetary conditions in China, as The government announced stimulus measures to boost growth.
