*
Markets brace for a Fed hawkish rate cut
*
BOJ is expected to hike in December, but fiscal policy in
focus
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Euro supported by a more hawkish rate outlook
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Bank of Canada holds rates steady
(Adds new comment, FX table, updates prices)
By Stefano Rebaudo and Gertrude Chavez-Dreyfuss
MILAN/NEW YORK, Dec 10 (Reuters) -
The U.S. dollar weakened on Wednesday, erasing two days of
gains, as investors trimmed positions in anticipation of an
expected third consecutive interest rate cut of a quarter of a
percentage point by the Federal Reserve.
Investors expect the policy-setting Federal Open Market
Committee, including Chair Jerome Powell, to stay
non-committal on further easing
, citing persistent inflation risks and a lack of new and
more relevant data to gauge the U.S. economy's current health.
"The Fed has no other choice but to do a hawkish cut, which
is what everybody's expecting. We certainly had plenty of
economic data - not the primary data though - that suggests the
job market has slowed, that prices have stabilized and you're
not getting massive inflation," said Eugene Epstein, head of
trading and structured products at Moneycorp in New Jersey.
"But the most recent data that everybody looks at - nonfarm
payrolls, CPI, etc - have not been released yet. So the Fed is
running semi-blind at this meeting because they don't have the
full picture just yet on the economy."
Investors overall have pared expectations of rate cuts in 2026.
U.S. rate futures have priced in just two more rate cuts in 2026
that brings the Fed policy rate to 3.0%. That's still lower,
however, than the Fed's rate forecast of 3.4% spelled out in its
so-called "dot plot".
Market participants continued to price out U.S. recession
risk given the recent run of data that showed the economy, while
exhibiting pockets of weakness in the labor and manufacturing
sectors, is not necessarily falling off a cliff.
Data on Tuesday showed U.S. job openings increased marginally in
October after surging in September, suggesting the labor market
is cooling.
White House economic adviser Kevin Hassett, the front-runner to
be the Federal Reserve's next chair, told the WSJ CEO Council on
Tuesday there was "plenty of room" to cut interest rates
further, though he added that if inflation rose the calculation
might change.
In late morning trading, the dollar fell 0.3% against the yen to
156.45 yen, while the dollar index slid 0.2% to 99.067
.
EURO SUPPORTED BY THE RATE OUTLOOK
The euro rose 0.1% to $1.1643 as investors focused
on its gap with U.S. bond yields and saw little chance of a
significant drop in euro zone rates in the near term.
Strong economic data and comments from European Central Bank
policymaker Isabel Schnabel - who said a rate hike was more
likely than a cut - led investors on Monday to rule out a rate
cut in 2026 and assign more than a 50% chance of a hike in March
2027.
"ECB's Schnabel validated the hawkish expectations of the
market on increased adoption of AI technologies and public
investments pushing the neutral rate higher," said Andrea
Appeddu, strategist at Citi.
ECB President Christine Lagarde said on Wednesday the ECB might
lift its growth projections again in December given the
economy's unexpected resilience to uncertainty and trade
tensions.
Market players also monitored developments in Ukraine, while the
European Union neared a deal to fund Kyiv in 2026 and 2027 that
would win backing from at least a qualified majority of member
states.
In other currency pairs, the Japanese currency sank to a
record low against the euro at 182.59 yen. The euro
was last down 0.1% at 182.85.
"The yen should find sufficient support ahead of the upcoming
BoJ decision, but its policy space will be shaped as much by
domestic politics and fiscal aspects as by global (rate)
differentials," said Geoff Yu, EMEA macro strategist at BNY.
The Bank of Japan meets next week and is expected to raise
interest rates. The market will also follow closely what
Governor Kazuo Ueda says about the future policy path.
Canada's central bank held its key policy rate steady at 2.25%
on Wednesday as widely expected, and Governor Tiff Macklem said
the economy was proving resilient overall to the effect of U.S.
trade measures.
The U.S. dollar edged higher against the Canadian currency,
rising 0.1% to C$1.3864.
Currency bid prices
at 10 December?
03:36 p.m. GMT
Description RIC Las U.S. Close Pct YT Hig Low
t Previous Cha D h Bid
Session nge Pc Bid
t
Dollar index 073 13% .6 258 01
8%
Euro/Dollar 5% 7 1
Dollar/Yen 9% 5
Euro/Yen ? 6%
Dollar/Swiss 55
%
Sterling/Dollar % 6 7?
Dollar/Canadian 9%
Aussie/Dollar % 4 9
Euro/Swiss 2%
Euro/Sterling %
NZ Dollar/Dollar % 9
Dollar/Norway 153 3% 0. 163 136
5? 67 3
%
Euro/Norway 2 %
Dollar/Sweden 233 36% 5. 725 145
37
%
Euro/Sweden 4%
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