The U.S. dollar experienced an increase against major currencies on Monday amid volatile trading conditions, as the market anticipates a week filled with central bank meetings, particularly focusing on the Federal Reserve. An interest rate cut is largely anticipated; however, investors are preparing for indications of a more gradual easing cycle than previously expected. The yen experienced a decline across the board following a significant magnitude 7.6 earthquake that struck Japan’s northeast region late on Monday, leading to tsunami warnings and evacuation orders for residents. In addition to the Fed’s decision on Wednesday, the central banks of Australia, Brazil, Canada, and Switzerland are scheduled to hold rate-setting meetings; however, no changes to monetary policy are anticipated from these institutions.

Experts anticipate the Fed will implement a “hawkish cut,” as indicated by the wording of the statement, median projections, and Chair Jerome Powell’s press conference suggesting a greater threshold for additional rate decreases. The Federal Open Market Committee, responsible for determining monetary policy, is anticipated to declare on Wednesday a reduction in the benchmark overnight rate by 25 basis points, bringing it to a range of 3.50%–3.75%. This marks the central bank’s third consecutive meeting of easing measures. The potential for supporting the dollar exists if it leads investors to reconsider their forecasts for two or three rate cuts in the upcoming year. However, the communication may be complicated by the differing views among policymakers, as several have nearly signaled their voting preferences. “In an economy that is stable and inflation remains manageable, the Fed can confidently reduce interest rates without committing to or assuring any future actions,” stated Juan Perez. “It is challenging to imagine decision-makers strategizing for the future when they must first examine past events to accurately evaluate our current position.” Current conditions indicate a phase of stagflation, leading to divergent perspectives as officials lack a unified stance on economic conclusions.

The dollar index recorded a rise of 0.1%, reaching a level of 99.07. The greenback appreciated by 0.2% against the Swiss franc, reaching 0.8066 franc. “We anticipate observing some dissenting opinions, possibly from both hawkish and dovish members,” stated Bob Savage. The Federal Open Market Committee has not experienced three or more dissents at a meeting since 2019, with such occurrences happening only nine times since 1990. Despite the U.S. currency’s decline over the last three weeks, dollar bulls have regained some confidence. Recent weekly positioning data indicates that speculators currently maintain their most substantial long position, anticipating an increase in the dollar’s value, since prior to President Donald Trump’s “Liberation Day” tariff announcement in early April, which caused a significant decline in the currency. The labor market is softening; however, overall growth remains resilient. The stimulus from Trump’s “One Big Beautiful Bill” is expected to begin impacting the economy, while inflation continues to exceed the central bank’s target rate of 2%, according to analysts.

The yen experienced a decline following reports of a significant earthquake in Japan. According to analysts, the Bank of Japan may postpone a projected rate hike next week, contingent upon the severity of the earthquake’s damage. The dollar appreciated by 0.3% against the yen, reaching 155.97 yen, while the euro also increased by 0.3%, settling at 181.42 yen. The upcoming BOJ monetary policy meeting is set for December 18-19, 2025, with the policy decision and statement anticipated on the second day. In Europe, the euro experienced a minor decline, trading at $1.1639. It was previously supported by increased bond yields in the euro zone. In early trading, German 30-year yields reached their peak since 2011. The ECB is anticipated to maintain its current rates in the upcoming year, in contrast to the Fed’s potential adjustments. Prominent policymaker Isabel Schnabel stated on Monday that the central bank’s forthcoming action might indeed be an increase. The Australian dollar experienced a brief peak at US$0.6649, marking its highest level since mid-September, before last trading down 0.3% at US$0.6621. The Reserve Bank of Australia convenes on Tuesday following a series of robust data points regarding inflation, economic growth, and household expenditure. The futures market suggests that the upcoming decision may lead to an increase, potentially occurring as early as May. The Bank of Canada is anticipated to maintain its current rates on Wednesday, with a rate increase fully factored in by December 2026. The Canadian dollar experienced a decline relative to the US dollar, which increased by 0.3% to C$1.3850. The Canadian dollar reached its highest level in 10 weeks on Friday, buoyed by robust employment figures. Sterling remained steady at approximately $1.3327 against the dollar, showing no change for the day.