Euro, US dollar steady before ECB decision, Swiss franc falls on large rate cut

THE US dollar was broadly steady on Thursday (Dec 12) while the euro traded a touch higher before the European Central Bank’s monetary policy decision later in the day, where a quarter-point rate cut is widely expected.

The Swiss franc fell after its central bank lowered interest rates by more than expected – 50 basis points – while the Australian dollar surged after domestic employment data beat forecasts.

The dollar index, which measures the currency against a basket of six others, was little changed at 106.58, a day after a US inflation reading cemented bets for a rate cut from the Federal Reserve next week.

The consumer price index rose 0.3 per cent last month, in line with forecasts, the Labor Department’s Bureau of Labor Statistics said.

Markets are now almost fully pricing a 25 basis point cut at the Fed’s Dec 17 to Dec 18 meeting, compared with about a 78 per cent chance a week ago, the CME FedWatch tool showed.

The ECB is also all but certain to cut interest rates when it announces policy on Thursday and will likely signal further easing ahead as inflation eases back to target and economic growth remains subdued.

“Market pricing of the ECB already sees rates being cut into accommodative (sub-2 per cent) territory next summer,” ING strategist Chris Turner said.

“Overall we remain bearish on EUR/USD and don’t see the case for the ECB to aggressively push back against current market pricing.”

The euro was last up about 0.1 per cent against the dollar at US$1.0503.

The Swiss franc fell against both the dollar and the euro after the Swiss National Bank opted for a 50 basis point interest rate cut. A majority of economists surveyed by Reuters had expected a smaller 25 basis point move.

The dollar was up 0.2 per cent at 0.8867 francs, while the euro rose as high as 0.93455 francs, its strongest level against the Swiss currency since Nov 25.

“There will be some headwinds in the near term,” said Kirstine Kundby-Nielsen, FX research analyst at Danske Bank, about the Swiss franc after the rate cut.

“But more broadly I still think euro-Swiss will go lower, the franc will strengthen, if we look at the next couple of months ahead as I don’t think the picture is very rosy in the euro area.”

The dollar was slightly weaker at 152.175 yen, after hitting a two-week high of 152.845 yen the previous day as market players trimmed back bets for a rate hike in Japan next week.

Reuters reported on Thursday that the BOJ is leaning towards keeping rates steady, as policymakers prefer to spend more time scrutinising overseas risks and clues on next year’s wage outlook.

But with markets now eyeing a rate hike just a month later in January, the shift has not really become a big driver for investors to pile into the dollar against the yen, said Akira Moroga, chief market strategist at Aozora Bank.

“There were expectations for December, so dollar/yen has been rising from around 150 yen to about the 200-day average,” he said.

The Australian dollar was up 0.6 per cent at US$0.6408, pulling further away from the just over one-year low of US$0.63370 touched on Wednesday.

Australia’s jobless rate posted a shock decline to an eight-month low in November, prompting markets to scale back bets for easing from the Reserve Bank of Australia in February.

The kiwi climbed 0.3 per cent to US$0.5799, after hitting its lowest since Nov 2022 at US$0.57625 in the previous session.

The yuan was last trading around 7.2678 per dollar, up about 0.1 per cent in offshore trading.

China pledged on Thursday to increase its budget deficit, issue more debt and loosen monetary policy to maintain stable economic growth. REUTERS