The Dollar Slips to a 5-Month Low Amid Cooling US Inflation
Market Expectations for a US Interest Rate Cut
The dollar edged down on Friday, hitting a near five-month low as data showed annual U.S. inflation slowed further below 3% in November, cementing market expectations for a U.S. interest rate cut next March.
Decline in Inflation Rate
In the 12 months through November, inflation, as measured by the personal consumption expenditures (PCE) price index, stood at 2.6%, easing from 2.9% in October. Excluding the volatile food and energy components, the so-called core PCE price index advanced 3.2% year-on-year in November, the smallest rise since April 2021. The Federal Reserve tracks the PCE price measures for its 2% inflation target.
Impact on Monetary Stance
“The market will view the data as very much adding weight to the Fed’s recent tilt towards an easier monetary stance,” said Stuart Cole, chief macro economist at Equiti Capital.
Fed’s Tilt and Dollar Pressure
The dollar has come under selling pressure after last week’s Federal Reserve meeting prompted traders to pencil in several rate cuts in 2024, starting as early as March. U.S. Federal Reserve officials have since been pushing back on the idea of rapid rate cuts next year.
Dollar Index Movement
The dollar index was last down 0.08% at 101.7, after dipping as low as 101.42, its lowest since late July. The index is on pace to finish the year down about 2%.
Impact on Euro and Sterling
The euro was up 0.02%. The European Central Bank will need at least until spring before it can reassess its policy outlook and market expectations for an interest rate cut in March or April are premature, ECB policymaker Bostjan Vasle said on Monday. Sterling gained 0.09% to $1.2703 as traders digested data that showed British retail sales in November jumped by much more than expected, but third-quarter GDP was revised lower.
Japanese Yen and Other Currencies
The dollar edged higher against the yen last up 0.25% at 142.465 yen, after data showed Japan’s core inflation slowed sharply in November to a pace unseen in over a year, highlighting easing cost-push pressures that may give the central bank more time before phasing out its massive monetary stimulus. The risk-sensitive Australian and New Zealand dollars traded higher on the day. The Australian dollar was last up -0.04% at $0.68, earlier having touched $0.6825, its highest since July. The New Zealand dollar traded up 0.07% at $0.62985, also a five-month high.
Cryptocurrency Movement
In cryptocurrencies, bitcoin slipped 0.34% to $43,726, just shy of the 8-month high of $44,729 hit earlier this month. A spate of filings for spot bitcoin and ether ETFs, including from traditional finance heavyweights, has helped revive the crypto market this year after a series of meltdowns in 2022.
