Dollar holds steady amid Federal Reserve caution

Most Asian currencies traded in a narrow range alongside the U.S. dollar during Wednesday’s session, as investors awaited the Federal Reserve’s decision on a potential interest rate cut. Despite market expectations of a 25-basis-point reduction, caution remained dominant due to the possibility that the Fed could adopt a more hawkish tone, keeping dollar movements confined to a tight range.

The U.S. dollar index moved with little change, while dollar index futures slipped about 0.4% as traders priced in the likelihood of a rate cut. Markets are highly sensitive to comments from Fed Chair Jerome Powell, particularly regarding the outlook for interest rates in 2026 and whether the central bank will strike a balance between supporting growth and curbing inflation. Analysts at ING expect the Fed to deliver a “cautious cut,” with hints that it may pause at the January meeting, while MUFG analysts noted that investors will also focus on the updated growth and inflation forecasts for signals on the future direction of monetary policy.

In currency markets, the Japanese yen edged slightly against the dollar, while the greenback remained broadly stable versus the Singapore dollar and the Chinese yuan in both onshore and offshore markets. The dollar posted modest gains against the Indian rupee and the South Korean won, with some of these currencies remaining near their recent record levels.

Overall, market sentiment stayed cautious, as investors closely await the Fed’s next move and whether it will continue along the easing path or shift toward a more hawkish stance—keeping the U.S. dollar at the center of global market movements toward the end of the week.

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