The US dollar held steady on Tuesday as investors continued weighing the likelihood of a Federal Reserve rate cut next month following dovish remarks from policymakers, while the Japanese yen remained in focus amid the possibility of official intervention.

On Monday, Fed Governor Christopher Waller said the labor market was now weak enough to justify another quarter-point rate cut in December, though any further action would depend on a wave of delayed economic data caused by the federal government shutdown.

His comments followed similar remarks from New York Fed President John Williams on Friday.

According to CME’s FedWatch tool, traders now price an 81% chance of a rate cut next month, up sharply from 42% a week earlier. The shift underscores the challenge markets face in pricing short-term rate expectations amid the lack of data during the longest government shutdown in US history, which ended on 14 November.

So far, the impact of this sharp repricing has been limited for the dollar. The euro last traded at 1.1530 dollars after a slight rise on Monday night, while the British pound climbed about 0.2% to 1.3115 dollars.

The dollar index — which tracks the US currency against a basket of major peers — was steady at 100.13, holding onto last week’s roughly 1% gain.

Francesco Pesole, currency strategist at ING, said year-end portfolio rebalancing flows ahead of the Thanksgiving holiday may limit dollar weakness. But he added in a note to clients: “Barring a hawkish repricing in markets, the dollar looks too strong relative to short-term rate differentials, and we see significant downside risks.”

Fed officials remain divided on the next move as the central bank still lacks complete economic data.

Investor sentiment was also supported by signs of improved US-China relations. President Donald Trump said Monday that ties with China were “extremely strong” following a phone call with President Xi Jinping.

Yen traders on alert for possible intervention

Despite a mild dip in the dollar this week, the Japanese yen remained under pressure, trading at 156.51 per dollar — close to last week’s 10-month low of 157.90.

Investors are watching closely for any signal of official action from Tokyo, given that the yen has weakened by roughly 10 yen since early October after the appointment of Sanai Takaichi — known for her expansionary fiscal stance — as Japan’s new prime minister.

Pesole said thin liquidity surrounding the Thanksgiving holiday could provide favorable conditions for the Bank of Japan to intervene in the dollar/yen rate, ideally after a market-driven correction.

He added: “US data could trigger that correction, but in our view, not today.”

US retail sales and producer-price data are due later on Tuesday.

In other currencies, the New Zealand dollar slipped to 0.5595 dollars after falling more than 2% this month ahead of an expected rate cut by the Reserve Bank of New Zealand on Wednesday. The Australian dollar traded at 0.6453 dollars, down 0.15% on the day.

Gold prices rose in European trading on Tuesday, extending gains for a second straight session and hitting a two-week high, with the metal shrugging off a stronger US dollar in the foreign exchange market.

Less hawkish remarks from several Federal Reserve officials boosted expectations of a December rate cut, while investors await further US economic data.

Price Overview

• Gold prices climbed 0.5% to 4,155.81 dollars — the highest since 14 November — from an opening level of 4,134.80 dollars, after touching an intraday low of 4,122.78 dollars.

• On Monday, gold settled up 1.75%, its first gain in three sessions, supported by improved investment demand for the precious metal.

US Dollar

The dollar index rose 0.1% on Tuesday, resuming gains after a brief pause and moving once again near six-month highs, reflecting renewed strength in the greenback against major and minor currencies.

The rise comes as investors continue buying the dollar as the most attractive asset available, despite the recent cautious tone from several Fed officials.

US Interest Rates

• Fed Governor Christopher Waller said Monday that the labor market is now weak enough to justify another 25-basis-point rate cut in December, although any action afterward will depend on a wave of delayed data following the government shutdown.

• New York Fed President John Williams said Friday he expects the central bank to cut its main policy rate from here, arguing that labor-market weakness poses a bigger economic threat than elevated inflation.

• After these comments — and according to CME’s FedWatch tool — market pricing for a 25-basis-point December rate cut jumped from 43% to 80%, while expectations for no change fell from 57% to 20%.

• Investors now await delayed US data on producer prices and September retail sales, due later today.

Gold Outlook

Kelvin Wong, market analyst for Asia-Pacific at OANDA, said gold has been driven mainly by rate-cut expectations over the past two weeks. As those expectations climbed rapidly, he noted, they helped lift gold in the short term.

Wong added that market participants will now pay much closer attention to any US demand-related economic indicators.

SPDR Holdings

Holdings in the SPDR Gold Trust — the world’s largest gold-backed ETF — rose by 0.29 metric tons on Monday, marking a second straight daily increase and bringing total holdings to 1,040.86 metric tons.

The euro fell in European trading on Tuesday against a basket of global currencies, resuming its losses after a brief pause yesterday against the US dollar and moving once again toward a two-week low, as traders continue to favor the greenback as the best available investment.

Investors are closely following the latest developments in peace talks underway in Geneva aimed at ending the war in Ukraine, with Kyiv maintaining its rejection of the plan proposed by US President Donald Trump, arguing that it leans heavily in Moscow’s favor. Meanwhile, Washington is pushing European governments to adopt the plan—or at least adjust it enough to make it acceptable to all sides.

Price Overview

• EUR/USD fell 0.1% to 1.1512 dollars, down from an opening of 1.1521, after touching a high of 1.1530.

• The euro ended Monday up about 0.1%, its first gain in seven sessions, rebounding from last week’s two-week low at 1.1491.

US Dollar

The dollar index rose 0.1% on Tuesday, resuming gains after a brief pause and moving once again near six-month highs, reflecting renewed strength in the US currency against major and minor peers.

This strength comes as investors continue buying the dollar as the most attractive asset available, despite recent cautious remarks from some Federal Reserve officials that boosted expectations of a December rate cut.

Peace Talks

Trump unveiled a joint peace proposal with Russia last week to end the war in Ukraine—an initiative that triggered significant controversy, particularly from Kyiv and its European allies.

According to multiple media reports, the plan includes major concessions from Ukraine, such as implicit Russian recognition over annexed territories like Donbas, limits on Ukraine’s military capabilities, and excluding Kyiv from joining NATO.

Ukraine and several European leaders rejected the draft outright, calling it biased toward Russia and harmful to Ukrainian sovereignty. Washington is now engaged in expanded negotiations in Geneva with Ukraine and European partners to reshape the proposal into a more balanced format.

Trump expressed optimism on Monday, saying “maybe something good will happen,” hinting at a potential breakthrough. European Commission President Ursula von der Leyen also said there is “good progress” in the Geneva talks.

Views and Analysis

• Chris Turner, head of FX strategy at ING, said markets have “been here before,” but noted that the prospect of a Ukraine peace deal is beginning to show up in FX trading. Turner added that lower energy prices would support the euro.

• In September, Sweden’s SEB Bank said the euro could rise as much as 7.5% against the dollar if a credible peace agreement between Russia and Ukraine is reached.

• SEB analysts said such a breakthrough would be “a game-changer for European growth and inflation dynamics,” boosting household purchasing power and reviving the manufacturing sector.

European Interest Rates

• Market pricing for a 25-basis-point ECB rate cut in December remains around 25%.

• Investors await further eurozone data on inflation, unemployment, and wages before repricing policy expectations.

The Japanese yen rose in Asian trading on Tuesday against a basket of major and minor currencies, moving into positive territory against the US dollar and pulling away from ten-month lows, supported by bargain-hunting and ongoing speculation that authorities may intervene to support the currency.

With the chances of a Bank of Japan rate hike in December still weak, investors are awaiting further clues on the path of policy normalization heading into the new year.

Price Overview

• USD/JPY fell more than 0.2% to 156.56 yen, down from an opening level of 156.91, after touching a high of 156.98.

• The yen ended Monday down 0.4% against the dollar, following a 0.7% gain on Friday as it recovered from last week’s ten-month low at 157.89.

Japanese Authorities

Takuji Aida, a member of a key government advisory panel from the private sector, said on NHK TV on Sunday that Japan is capable of intervening effectively in the currency market to offset the negative economic impact of a weak yen.

Finance Minister Satsuki Katayama said on Friday that FX intervention remains an option to counter excessive volatility and speculative moves, keeping traders on alert for potential yen-buying action by Japanese authorities.

Views and Analysis

• Nick Rees, head of macro research at Monex Europe, said intervention could help slow the dollar’s rise against the yen but is unlikely to fully reverse it, given that the underlying drivers are not expected to change soon.

• Matthew Ryan, head of market strategy at Ebury, said USD/JPY is not far from levels that could trigger direct intervention, with 160 seen as a key threshold for authorities.

• Some market analysts believe official intervention—similar to last year and 2022—remains possible. Traders expect potential action between 158 and 162 per dollar, though few expect it to be highly effective.

Japanese Interest Rates

• Market pricing for a 25-basis-point rate hike by the Bank of Japan in December remains around 35%.

• Investors await upcoming data on inflation, unemployment, and wage growth to reassess those odds.