Dollar in the Area of Tension: Fed Decision in Focus

The US dollar traded within a narrow range on Thursday after previously reaching a two-week high, supported by a rise in US Treasury yields. Market observers still expect the US Federal Reserve to cut interest rates next week. The Australian dollar also gained significantly after employment data exceeded forecasts, while the euro remained stable ahead of the European Central Bank's (ECB) monetary policy decision. The considerable appreciation of the greenback from the previous day was supported by the sale of long-term Treasury bonds and data on a growing US budget deficit. The consumer price index (CPI) for November rose by 0.3%, the highest increase since April. Economists are almost certain that the Fed will cut interest rates by 25 basis points at their December 17-18 meeting. Market participants are hoping for new US inflation data as soon as the producer price index (PPI) is published later. Should there be no "strong increases" in consumer-related categories, the Fed might dare to reduce, according to Carol Kong from the Commonwealth Bank of Australia. However, there is still uncertainty about interest rate developments in the new year. The dollar index, which measures the greenback against six major competitors, fell by 0.07% to 106.53. The dollar fell by 0.21% to 152.14 yen after it previously reached a two-and-a-half-week low. Market expectations for a rate hike further declined following a Bloomberg report about the Bank of Japan, which sees "low costs" in a wait-and-see stance. Meanwhile, traders turned their attention to China’s Central Economic Work Conference, as reports of an easing currency policy kept the yuan in check. The Australian dollar rose by 0.6% to $0.64075, while the New Zealand kiwi also gained. The euro was quoted at $1.0506 with a gain of 0.09%. Central bank movements in Canada and Switzerland also influenced sentiment, with the Canadian dollar remaining at 1.41435 after a half-percentage-point rate cut by the Bank of Canada.