The U.S. dollar edged lower following comments from Federal Reserve Governor Christopher Waller, who hinted at a potential rate cut in December. While Waller acknowledged progress toward the Fed’s 2% inflation target, he remains cautious about signs that inflation could still stall.
Waller’s comments and market expectations
Waller said he is currently leaning toward a 25-basis-point rate cut at the Fed’s December 17-18 meeting, following previous reductions in September and November. However, he stressed that his decision will depend on upcoming data, including inflation and employment reports, which could shift the outlook.
The October personal consumption expenditures (PCE) index showed core inflation rising to 2.8%, above the Fed’s 2% goal, raising concerns about slower-than-expected progress. Markets, however, have priced in a 70% likelihood of the cut, as the Fed looks to return monetary policy to a more neutral setting.
How the dollar reacted
The dollar index (DXY) fell 0.1% to 106.39 as traders factored in the possibility of further easing. While rate cuts typically weigh on the dollar, analysts suggest that strong U.S. economic data, such as resilient job numbers, could offset the downward pressure.
What’s next?
Key economic reports, including job openings and nonfarm payrolls, will likely influence both the Fed’s decision and the dollar’s trajectory. For now, the markets remain focused on how the Fed balances inflation concerns with the broader economic picture.
The dollar’s near-term outlook will hinge on these developments, keeping traders on high alert ahead of the December meeting.
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