The US Dollar (USD) index dropped to its lowest point since early September, continuing its decline as investors speculate that the U.S. Federal Reserve may have concluded its cycle of interest rate hikes.
The index reached 103.46, marking its weakest level since September 1, following a nearly 2% fall last week – the largest weekly drop since mid-July. This downturn reflects the market’s belief that the Fed’s rate increases may have ended, influenced by recent economic data indicating a slowing economy and inflation.
Market Speculations and Economic Indicators
Investors are now focused on predicting when the Fed might start to reduce interest rates. Current market predictions, informed by tools like the CME’s FedWatch, suggest a more than 50% likelihood of a rate cut by May. Monday’s economic indicators, including the Conference Board’s October leading economic indicator, showed a 0.8% decline, slightly more than anticipated. This week’s economic calendar is lighter due to the Thanksgiving holiday in the U.S.
Major currencies like the euro and yen have strengthened despite the weakening dollar. The euro reached $1.0945, its highest since August 30, while the yen hit a 6-1/2-week high against the dollar. Market analysts attribute the euro’s strength to expectations that the European Central Bank (ECB) will continue its rate hikes even after the Fed stops. Additionally, Moody’s upgraded Italy’s sovereign rating outlook and Portugal’s rating, positively impacting the euro. The British pound also saw gains, reaching a two-month high against the dollar.
Investors await further insights from Federal Reserve Bank of Richmond President Thomas Barkin’s speech and the upcoming release of minutes from the Fed’s latest meeting for more clues on the central bank’s future policy direction.