Dollar steady before Fed minutes, China's yuan breaches key level
The dollar held steady above recent lows on Tuesday ahead of the release of the minutes from the Federal Reserve's December meeting, while China's yuan strengthened through a key psychological level against the U.S. currency.
End-of-year holidays thinned liquidity as traders anticipated the dollar could remain under pressure. This year, it is set for its worst performance since 2017 with a fall of almost 10% .
Some analysts said the minutes from the Fed's December meeting, when the central bank cut rates, could reinforce expectations for further easing. Traders price in two more cuts for 2026.
The minutes are expected to shed fresh light on disagreements among policymakers over a decision to reduce short-term rates a third straight time and signal a near-term hold on rates in 2026.
The euro hovered around $1.1769, little changed on the day, and set for a yearly gain of almost 14%. Sterling fetched $1.3508, poised for an increase of 8% in 2025.
The dollar index , which measures the U.S. currency against rivals, headed for a 9.6% annual drop, its steepest decline in eight years due to Fed rate-cut bets, shrinking interest rate differentials against other currencies and concerns about fiscal deficits and political uncertainty.
It was last trading at 98.03, hovering above last week's three-month lows.
MUFG strategists expect the dollar index to decline by 5% next year, noting the U.S. economy and the direction of monetary policy are likely to be the main drivers.
But others cited the stabilisation of the dollar in recent months, and limited scope for the Fed to cut rates much further.
"We think the dollar is going to range trade around current levels versus the key crosses," said Zurich Insurance Group's chief market strategist Guy Miller.
"We've pretty much moved sideways since the summer period, certainly against the Swiss franc and the euro."
Source: Reuters.com
