US dollar retreats as prospect of Fed rate cuts overshadows growth data
The U.S. dollar weakened on Tuesday in a holiday-shortened week after data showing strong growth in the world's largest economy failed to shift sentiment on a currency under pressure from expectations of Federal Reserve interest rate cuts next year.
The report bolstered views that the Fed will hold off on cutting rates at its meeting in late January, with the odds currently at 87%, according to LSEG estimates. U.S. rate futures now expect the U.S. central bank's next policy easing will occur in June, with two quarter-percentage-point cuts priced in for 2026.
U.S. gross domestic product rose at a 4.3% annualized rate in the last quarter, the first estimate from the Commerce Department's Bureau of Economic Analysis showed. Economists polled by Reuters had forecast GDP would rise at a 3.3% pace in the third quarter.
The dollar trimmed its losses against the yen and euro following the release of the GDP report.
Following the GDP report, the dollar cut its losses against the yen and last traded at 156.26 yen , still down 0.5%.
The euro also pared gains against the dollar after the data and was last at $1.1779 , still up 0.2% on the day.
JAPAN INTERVENTION WATCH
The yen gained against the dollar in earlier trading after the strongest indication yet from authorities of Tokyo's readiness to intervene.
The Japanese currency hovered near lows against its major peers in recent sessions, with the threat of intervention keeping yen bears at bay. But near-term yen weakness is likely to persist, analysts say, as the cautious tone from the Bank of Japan last week hinted at a slow pace of rate hikes next year.
Japanese Finance Minister Satsuki Katayama said on Tuesday that Japan has a free hand in dealing with excessive moves in the yen.
Elsewhere in currency markets, the dollar index , which measures the U.S. currency against six rivals, slipped 0.2% to 98.02, extending its losses into a second straight day. The index fell to its lowest level since early October and was on course for a 1.4% decrease for the month, which would be its biggest fall since August, and a 9.6% drop for the year, which would be its steepest annual decline since 2017.
Strategists at MUFG said the dollar's drop this year is unlikely to be a one-off deal.
The dollar also dipped after data showed U.S. consumer confidence worsened in December. The Conference Board said on Tuesday its consumer confidence index fell 3.8 points to 89.1 this month. Economists polled by Reuters had forecast the index would be at 91.0.
In other currencies, sterling rose 0.2% against the dollar to $1.3483, after earlier hitting a 12-week peak of $1.35.
Against the Swiss franc, the greenback fell 0.4% to 0.7886 francs . Earlier in the session, the dollar dropped to a three-month low of 0.7867 francs.
Source : Reuters.com
