On Tuesday (December 10), the dollar rose as market sentiment turned optimistic with investors eagerly awaiting the upcoming U.S. Consumer Price Index (CPI) data, which could provide important clues for the Federal Reserve's future monetary policy. Expectations for a Fed rate cut remain strong, with the market estimating an 86% probability of a 25 basis points cut in their December meeting. However, inflation data may become a key variable, and investors are closely watching whether the CPI will prompt adjustments in the Fed's monetary policy.
Analysts noted that the market is somewhat nervous about stronger inflation data as it could make the Fed's outlook slightly hawkish and might even lead to a repricing of interest rate cut expectations. "The market has almost priced in a rate cut by the Fed in December, but the data may still influence the Fed's final decision," an analyst said.
The dollar rose 0.47% against the yen to 151.925, reaching a new high in several months. The dollar's strength reflects the expected direction of U.S. economic data and increased market anticipation for the Fed's easing policy. Meanwhile, the euro fell 0.27% against the dollar to $1.0526, pressured by investor concerns about the European economic outlook. The market widely anticipates that the European Central Bank will cut rates by a quarter percentage point at its upcoming meeting, leading to continued euro weakness.
As global central bank monetary policies become the focal point of market attention, investors are particularly focused on the European Central Bank's policy statement. Although a rate cut is almost a foregone conclusion, the market is still awaiting detailed communication on future policy directions. This will provide investors with more clues about future economic prospects and adjustments in central bank policies.
In other regions, the Bank of Canada and the Swiss National Bank are set to announce policy decisions on Wednesday and Thursday, respectively. The market broadly expects both banks to take significant rate cuts to address slowing economic growth and inflation pressures. The challenge for the Bank of Canada is balancing economic recovery with high debt levels, while the Swiss National Bank is actively stimulating growth while maintaining the Swiss franc at low levels.
The Australian dollar fell sharply in the day's trading, dropping to 0.6379 against the U.S. dollar, due to a softened tone from the Reserve Bank of Australia (RBA) on the inflation outlook, indicating that it may not take further tightening measures in the near future. The RBA's policy stance has reduced investor demand for the Australian dollar, leading to its depreciation.
In the macroeconomic backdrop, the policy direction of the Trump administration is also under widespread scrutiny. With U.S. President Trump about to begin his second term, the market widely anticipates that changes in his policies could have profound effects on the dollar and the global economy. Trump's fiscal stimulus policies, trade policies, and foreign economic strategy will directly influence the trajectory of both the U.S. and the global economy, with investors assessing the long-term effects of his policies.
Overall, the current trends in the forex market are driven by global central bank policies, U.S. economic data, and uncertainties around Trump’s policies. As the policy decisions of major central banks are gradually announced this week, market volatility may increase, and investors need to pay attention to the soon-to-be-released U.S. CPI data and the European Central Bank's policy statement to assess the direction of global monetary policy in the coming months and its impact on the forex market.
