Dollar on the Edge: Fed's Next Move in Focus as Currency Shifts

The dollar strengthened ahead of the Federal Reserve's December meeting minutes, which investors hope will clarify monetary policy direction. Despite its rise, the dollar is on track for its worst annual performance since 2017. Market participants anticipate insights into policymakers' disagreements and economic implications.

The dollar made gains on Tuesday as investors awaited the release of the Federal Reserve's December meeting minutes. With trading volumes remaining low due to the year-end holidays, analysts cautioned against over-interpreting current market movements despite the dollar's projected worst annual fall since 2017, nearing a 10% drop.

The minutes, to be disclosed at 2 p.m. EST, are expected to shed light on recent interest rate decisions and policy disagreements among Federal Open Market Committee members. The central bank had previously reduced rates and projected one more cut for the following year, though markets expect approximately two more reductions.

Participants in the market are particularly attentive to the dissent among policymakers, as reflected in currency and interest rates. Analyst Joseph Trevisani noted the unusual nature of dissent within the Fed, underlining uncertainty in policy direction. Additionally, economic data revealed the slowest annual growth in U.S. home prices since 2009, pointing towards improved housing affordability.

(With inputs from agencies.)