The dollar maintained its position above recent lows on Tuesday in anticipation of the forthcoming release of the minutes from the Federal Reserve’s December meeting, while China’s yuan showed resilience by strengthening past a significant psychological threshold against the U.S. currency. As the end-of-year holidays approached, liquidity diminished as traders speculated that the dollar might continue to face downward pressure. This year is poised to experience its most significant decline since 2017, with a decrease nearing 10%.
Some experts indicated that the minutes from the Fed’s December meeting, during which the central bank reduced rates, might strengthen anticipations for additional easing. Market participants are factoring in two additional reductions for 2026. The upcoming minutes are anticipated to provide new insights into the divisions among policymakers regarding the choice to lower short-term rates for the third consecutive time, as well as indicate a potential pause on rates in 2026.
The euro remained steady at $1.1769, showing minimal movement for the day, and is poised for an annual increase of nearly 14%. Sterling traded at $1.3508, indicating a potential rise of 8% by 2025. The dollar index, which assesses the U.S. currency in comparison to its counterparts, is on track for a 9.6% annual decline, marking its most significant drop in eight years. This downturn is attributed to expectations of Federal Reserve rate cuts, diminishing interest rate differentials with other currencies, and worries surrounding fiscal deficits and political instability.
It was last observed at 98.03, remaining above the three-month lows recorded last week. Strategists anticipate a 5% decrease in the dollar index next year, highlighting that the U.S. economy and the trajectory of monetary policy are expected to be the primary influences. However, some pointed to the recent stabilization of the dollar and the constrained ability of the Fed to significantly lower rates further. “We believe the dollar will likely trade within a range around current levels against the key crosses,” stated Guy Miller. We have largely remained in a horizontal trend since the summer months, particularly in relation to the Swiss franc and the euro.