The major foreign exchange rates have remained relatively stable overnight at the start of the holiday shortened week with Thanksgiving falling on Thursday, MUFG's FX analyst Lee Hardman reports.

Fed’s Williams signals December rate cut, dampening USD momentum

"The Dollar Index (DXY) has continued to trade just above the 100.00-level after closing above resistance from the 200-day moving average at around 99.800 last week. It was the first time the dollar index has closed above the 200-day moving average since early March providing a bullish technical signal for US dollar performance in the near-term. The dollar index is attempting to climb back into the 100.00-105.00 trading range that had been in place for most of 2023 and 2024."

"The US Dollar’s upward momentum was dampened at the end of last week by dovish comments from New York Fed President Williams who delivered a strong signal that the Fed leadership is still planning to cut rates in December. He stated that 'I still see room for a further adjustment in the near-term to the target range for the federal funds rate to move the stance of policy closer to the range of neutral'. He added that 'looking ahead, it is imperative to restore inflation to our 2% longer-run goal on a sustained basis. It is equally important to do so without creating undue risks to our maximum employment goal'."

"The dovish repricing of Fed rate cut expectations helped to provide support for the US equity market on Friday. The Nasdaq composite index closed up around 0.9% higher on the day after threatening to break below the 22,000-level earlier in the day. It was still the third consecutive weekly decline which is the longest run since February to April despite stronger than expected earnings last week from Nvidia. Market participants will be watching closely in the week ahead to if see the correction lower for US AI/tech stocks deepens further which could begin to spill-over more into the FX market."