Markets are also bracing for several more central bank decisions before the weekend. On Tuesday, the Reserve Bank of Australia kept rates on hold ruled and ruled out more rate declines, pushing the Aussie dollar higher.
The greenback, on the other hand, extended gains after data showed US job openings increased modestly in October, while hiring remained subdued. Job openings, a measure of labor demand, were up 12,000 to 7.670 million by the last day of October, according to the Job Openings and Labor Turnover Survey, or JOLTS report, on Tuesday.
Economists polled by Reuters had forecast 7.150 million unfilled jobs.
The dollar rose after the report, climbing to two-week highs versus the yen near 157 yen and was last up 0.6% at to 156.845. It also gained against the euro, which slipped 0.1% to US$1.1629.
With the data out of the way, the market has turned its focus once again to the Fed.
Investors are dialing back expectations of rate cuts in 2026 as skepticism mounts that Kevin Hassett, the frontrunner to succeed Jerome Powell, whose eight-year term as Fed chair ends in May, will prove as dovish as hoped by US President Donald Trump.
“There’s a lot of uncertainty about what we’re going to get tomorrow. Rate cuts are pretty much nailed on at this point,” said Shaun Osborne, chief FX strategist, at Scotiabank in Toronto.
“But beyond that, there’s a lot of moving parts to what the Fed can do tomorrow. I think there seems to be an expectation that Powell is going to try and set the bar relatively high for another cut, but I’m not sure that’s really going to give the dollar that much.”
The US dollar index, which measures the greenback’s strength against a basket of six currencies, edged up 0.1% at 99.21.
US outlook in 2026
With markets seeing that Fed policy easing this week is a near-certainty, attention is also turning to the outlook for the year ahead.
“Everyone will be looking at the dot plot,” said Commerzbank FX analyst Michael Pfister. “We are seeing decision-makers with diverging views now,” he said, adding that if the dot plots are lower than the last time, this will probably not be helpful for the dollar.
The “dots” from the September meeting, when the Fed resumed its easing cycle with a 25 basis-point cut, showed a policy rate of 3.6% by the end of 2025, 3.4% at the end of 2026, and 3.1% by the conclusion of 2027.
“A hawkish repricing is rolling across curves elsewhere — rate hikes are getting priced in for Australia, Canada, and the euro area in 2026 — so the dollar could come under pressure if Powell fails to out-hawk markets,” said Karl Schamotta, chief market strategist, at Corpay in Toronto.
Elsewhere, the euro slipped following Monday’s selloff in bund markets, after European Central Banks board member Isabel Schnabel told Bloomberg News the bank’s next move may be an interest rate hike rather than a cut as some expect, but added that it would not happen in the near future.
Aussie dollar gets lift; quake shakes yen
The Australian dollar advanced 0.3% to US$0.6641 after the central bank held rates for a third consecutive month at 3.6% as widely expected, and warned that a pickup in inflation could be persistent.
It accelerated gains as RBA Governor Michele Bullock said in a press conference that more rate cuts were not needed.
The yen earlier in Asia firmed after a powerful 7.5-magnitude earthquake struck Japan’s northeast overnight.
That added to the risk-averse mood ahead of the Fed meeting and expected policy decisions from several other central banks, while an auction of five-year government bonds attracted robust demand.
The Chinese yuan trading offshore in Hong Kong drifted 0.1% higher against the greenback to at 7.0617 per dollar, as markets deemed the statement from the latest Politburo meeting released on Monday indicated that policymakers showed little urgency to roll out additional stimulus measures.
In other currencies, the British pound was slightly down at US$1.3303, while the New Zealand dollar was modestly up at US$0.5781.
In cryptocurrencies, bitcoin rose 2.6% to US$93.704.38, while ether rose 6.4% to US$3,350.32.