The Chance of a December Rate Cut Approaches 100% but Bets on Rate Cuts in 2025 Lower

 

A day before the US interest rate decision, the dollar remained stable and approached its recent high today (December 17th) as traders raised their assumed long-term rates.

 

On Wednesday (December 18th), the Federal Reserve will announce its interest rate decision. There is a 94% chance of a rate cut in the market. However, traders believed that Wednesday's rate cut might be the last in the short run because the dollar was supported by the economy. The market currently expects about a 37% chance of one 25-basis-point cut or no cut for 2025, up from 21% a week ago, according to the CME's FedWatch tool.

 

Spectra Markets President Brent Donnelly said unpredictable policies and sticky prices could trigger inflation in 2025, so the Fed would have been extremely cautious about interest rates since 2025.

 

Besides the Fed, the Bank of Japan, the Bank of England, and the Bank of Norway will release rate decisions on Thursday. Rates are expected to be consistent.

 

The yen weakened again today because the likelihood of a rate hike in Japan this Sunday plunged. It is widely believed that Japan will raise interest rates next January.

 

With rising prices, the Bank of England had upward wage pressure and needed to handle the rate more cautiously. Labor data will be released today (December 17th).

 

The euro has lost nearly 5% against the dollar in 2024 and nears its annual trough of $1.0518.

 

Due to sliding interest rates and the US tariffs threat, the Canadian dollar slumped to a four-and-a-half-year low on Monday (Dec. 16th).

 

The Australian and New Zealand dollars were not sold off further and stayed near lows because China's muted economic indicators made markets bet on a government spending bailout.

 

China's yuan is under stress in offshore trade since pessimism about China's growth dragged 10-year bond yields down to the bottom.