The dollar slipped on Monday ahead of a packed week of central-bank meetings led by the US Federal Reserve, with a rate cut now fully priced in by markets, even as deep divisions inside the policy committee leave the final outcome uncertain.
Alongside Wednesday’s Fed decision, Australia, Brazil, Canada, and Switzerland will also set policy this week, though none are expected to make changes to their current rate settings.
Analysts expect the Fed to deliver what is being called an “aggressive cut,” in which the statement tone, the Summary of Economic Projections, and Chair Jerome Powell’s press conference collectively set tougher conditions for any further easing next year.
Such messaging could support the dollar if it forces investors to dial back expectations for two or three additional cuts in 2026 — though communication may prove complicated given the clear split among policymakers, with several members already signaling their voting intentions.
Significant risks from dissent within the committee
Bob Savage, head of macro strategy at BNY, wrote in a note to clients: “We expect to see dissent from both hawks and doves.”
The Federal Open Market Committee has not seen three or more dissents in a single meeting since 2019, and this has happened only nine times since 1990.
Despite the dollar’s decline over the past three weeks, bullish sentiment has rebounded. Positioning data shows speculative traders holding their largest net-long dollar positions since before former President Donald Trump’s tariff shock that sent the currency lower.
And while the labor market continues to cool, economic growth remains solid, with fiscal stimulus from the “one big beautiful bill” expected to build gradually in the coming months. Inflation also remains well above the Fed’s 2% target.
“These factors could dissuade the Fed from delivering further cuts if they translate into renewed labor-market strength,” said Lee Hardman, currency strategist at MUFG.
Euro supported by rising yields
The euro rose 0.1% to $1.1652, lifted by higher eurozone bond yields. Germany’s 30-year bund yield touched its highest level since 2011 in early trading.
Unlike the Fed, the European Central Bank is not expected to cut rates next year. Influential board member Isabel Schnabel said Monday that the bank’s next move could, in fact, be a hike.
The Australian dollar climbed to its strongest level since mid-September at $0.6649 before trimming gains to trade down 0.1% at $0.6635.
The Reserve Bank of Australia meets Tuesday following a string of strong prints on inflation, growth, and household spending. Interest-rate futures now suggest the next move could be a hike — possibly by May — making the post-meeting statement and press conference the main focus.
“We expect the bank to remain on hold for an extended period, keeping the cash rate at 3.60%,” ANZ analysts wrote last week after revising their forecasts.
Canada set to hold steady
The Bank of Canada is widely expected to leave rates unchanged on Wednesday, while markets fully price in a hike by December 2026. The Canadian dollar held at C$1.3819 per US dollar after touching a 10-week high Friday on the back of strong jobs data.
The yen steadied at ¥155.44 per dollar after sharp losses in November, the British pound held near $1.3325, and the Swiss franc edged higher to CHF 0.804 per dollar.
