Dollar Hits 5-Month Low Against Euro Amid Expectations of Fed Rate Cuts
Expectations of Fed Rate Cuts Lead to Dollar’s 5-Month Low Against Euro
The dollar fell to a five-month low against the euro and a basket of currencies as expectations of a Federal Reserve interest rate cut grew. This trend is expected to continue into the New Year, with price moves being exaggerated by low liquidity due to the holiday season.
Factors Affecting the Dollar’s Performance
The U.S. Dollar Index, which measures the U.S. currency against six others, dropped 0.48% to 100.98, marking its lowest level since July 27. The index is set to record a 2.45% decline in 2023 after experiencing two years of robust gains driven by the anticipation of interest rate hikes by the Fed, followed by actual rate increases to combat inflation.
The Fed’s Dovish Outlook and Market Sentiment
The Federal Reserve is now perceived as being dovish relative to other major central banks. Fed Chairman Jerome Powell’s unexpectedly dovish stance at the December meeting, where policymakers projected 75 basis points in easing in 2024, has led to increased expectations of a rate cut in the coming months.
Global Central Bank Policies and Market Predictions
Central banks such as the European Central Bank (ECB) have maintained a higher-for-longer stance, while the Bank of Japan has hinted at ending its negative rate policy. Market strategists believe that Japan is likely to transition out of its extreme low policy within the next few months, while the ECB appears to be adopting a slightly more hawkish approach compared to the Fed’s newfound dovishness.
Impact of Rate Cuts on the U.S. Economy
The U.S. outlook will be influenced by the possible triggers for rate cuts. If inflation falls more rapidly than the Fed’s benchmark rate, it could inadvertently tighten monetary conditions more than intended. The motivation behind the rate cuts will play a crucial role in shaping the economy and the stock market’s trajectory.
Performance of Major Currencies
The euro surged 0.54% to $1.1102, its highest level since July 27, while sterling rose 0.56% to $1.2793, reaching its highest point since August 10. The dollar also fell 0.35% to 141.89 Japanese yen, but is set to record an 8.22% gain for the year.
Currency bid prices at 3:00 PM (2000 GMT)
– Dollar index: 100.9600
– Euro/Dollar: $1.1102
– Dollar/Yen: 141.8900
– Euro/Yen: 157.52
– Dollar/Swiss: 0.8433
– Sterling/Dollar: $1.2793
– Dollar/Canadian: 1.3213
– Aussie/Dollar: $0.6841
– Euro/Swiss: 0.9360
– Euro/Sterling: 0.8676
– NZ: $0.6335
– Dollar/Norway: 10.1020
– Euro/Norway: 11.2157
– Dollar/Sweden: 9.9447
– Euro/Sweden: 11.0409
Bitcoin rose 1.60% to $43,191.
========================================================
