Dollar hovers near five-week low on Fed rate cut bets

Core Insights - Markets anticipate a quarter point reduction in interest rates when the Federal Open Market Committee meets on December 9-10, with a focus on future easing signals [1] - Traders are pricing in approximately 86% odds of a Fed cut next Wednesday, with expectations for 2-3 additional reductions in the following year [2] Labor Market Analysis - Federal Reserve officials are closely monitoring the labor market to assess the need for further economic support [3] - Recent data indicates that new applications for unemployment benefits fell to a three-year low, although this may be influenced by the Thanksgiving holiday [5] Data and Economic Indicators - The economic data landscape is incomplete due to a prolonged government shutdown, which delayed some releases and hindered data collection [6] - Crucial monthly payroll figures, typically released on Fridays, have been delayed, and previous month's data was not published [9] Inflation Metrics - One of the Fed's preferred inflation measures, the PCE deflator, is expected to show a 0.2% monthly increase, which could influence the decision to cut the Funds rate [10] - Analysts suggest a potential soft increase in core PCE inflation of only 0.1% [10] Currency Market Reactions - The U.S. dollar is near a five-week low against major currencies as investors prepare for a potential Federal Reserve rate cut [9] - The dollar index was flat at 99.065, having dipped to a low of 98.765 earlier in the session, indicating a 0.4% decline for the week [9] Central Bank Policy Outlook - Upcoming central bank policy decisions include the Reserve Bank of Australia's meeting on Tuesday, the Bank of Canada's on Wednesday, and the Swiss National Bank's on Thursday [10] - The Bank of Japan is expected to raise rates this month, but future actions remain uncertain, with markets pricing in only one more rate hike next year and a 50% chance of another [10]