Forex Today: Dollar tumbles as Fed signals cuts in 2024

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After the Federal Reserve, several other central banks, including the Bank of England, the European Central Bank, the Swiss National Bank, and the Norges Bank, will announce their decisions on monetary policy. In the Asian session, important economic data will be released, such as New Zealand’s Q3 GDP data and Australia’s employment report. Additionally, Japan will release data on Machinery Orders and Industrial Production. 

Here is what you need to know on Thursday, December 14:

After the Federal Reserve meeting, the US Dollar experienced a significant collapse. As expected, the central bank decided to keep interest rates unchanged. Market analysts are forecasting three rate cuts for 2024. Fed Chair Jerome Powell leaned dovish, adding fuel to the rally in Treasury bonds. He refrained from declaring victory on inflation, but markets did.

The 10-year yields dropped more than 4%, reaching their lowest level since August. At the same time, the US Dollar Index (DXY) declined by 0.85% to 102.80, marking its lowest point in two weeks. The US Dollar is under pressure and appears to have resumed its downward trend after a two-week correction.

On Thursday, important data from the US will be released, including the weekly Jobless Claims and Retail Sales reports. 

The EUR/USD pair surged and reached the 20-day Simple Moving Average (SMA). However, the rally encountered resistance around the 1.0900 level. The European Central Bank (ECB) will hold its monetary policy meeting, and it is widely expected to keep rates unchanged. The focus will be on the ECB’s hints for 2024, especially regarding the timing of potential interest rate cuts.

GBP/USD rallied after the Fed meeting, reaching one-week highs above 1.2600. The technical outlook suggests potential for further gains. The key support level remains at 1.2500. The Bank of England will announce its decision on monetary policy, and no change is expected in interest rates.

Analysts at TD Securities on the BoE:

Another hold is virtually guaranteed from the MPC, as weak data (particularly on the wages & inflation front) suggests that hikes are a thing of the past. Focus will be on whether the MPC pushes back on market pricing for aggressive cuts by May. Following downside misses to wages and GDP earlier this week, we now see a 7-2 vote.

USD/JPY lost almost 300 pips over the weekend due to a weaker US Dollar and lower Treasury yields. The pair dropped below the 143.00 level. Despite the rally in Wall Street, the Japanese Yen was one of the strongest gainers after the Federal Reserve meeting. Looking ahead, Japan has important data releases scheduled, including Machinery Orders and Industrial Production, following a positive Tankan survey.

USD/CHF resumed its decline towards the 20-day Simple Moving Average (SMA) and is currently testing the 0.8700 area. The Swiss National Bank (SNB) is expected to keep interest rates unchanged, with the key rate remaining at 1.75%.

NZD/USD rallied back towards December highs and is holding above 0.6200, showing strong bullish momentum ahead of the Asian session. New Zealand will release Q3 Gross Domestic Product (GDP) figures, with a 0.2% expansion expected.

AUD/USD had its best performance in a month, breaking a multi-day range. The pair approached December highs, and the 0.6700 area is back on the radar. The Australian November Employment Report is due on Thursday, with a positive change of 11,000 in employment expected after the increase of 55,000 recorded in October. The Melbourne Institute Consumer Inflation Expectation report is also scheduled for release.

Gold is shining again after rising by over $40 in just a few hours following he FOMC meeting. XAU/USD reached the $2,020 area. If the decline in US yields continues, there may be further potential for gains. Silver also joined the rally, climbing more than 4%.