Dollar Dips as Global Currencies Surge Amid Fed's Policy Shifts

The dollar steadied ahead of the Federal Reserve's December meeting minutes release, showing a potential downside amid liquidity pressures. Analysts expect further Fed rate cuts, contributing to dollar weakening. Conversely, the euro and yuan gain strength, with the yuan breaching key psychological levels against the dollar.

The dollar maintained stability on Tuesday as traders awaited the release of minutes from the Federal Reserve's December meeting. Amid diminished liquidity typical of the holiday season, the U.S. currency faced pressure, anticipating a near 10% drop this year—the worst since 2017.

Analysts suggest the Federal Reserve's December meeting minutes might bolster expectations for continued rate cuts, with traders already pricing in additional cuts by 2026. The euro and sterling are set for yearly gains, rising to $1.1767 and $1.3508 respectively, while the dollar index targets a significant 9.6% annual decline.

Conversely, China's yuan surged past a key psychological threshold against the dollar for the first time in 2-1/2 years amid robust exporter activity. The Japanese yen also saw movements, driven primarily by growth expectations and less by monetary policy, according to market experts.

(With inputs from agencies.)