The Dollar Sees First Yearly Loss Since 2020
The Dollar’s Performance in 2023
The dollar edged higher on Friday but is set to end 2023 with its first yearly loss since 2020 against the euro and a basket of currencies. This is due to expectations that the U.S. Federal Reserve will begin cutting rates next year as inflation moderates.
Expectations for 2024
Questions for 2024 will be when the Fed begins cuts, and whether the first rate reduction is made to avoid over-tightening as inflation drops, or due to slowing U.S. economic growth. Markets are already pricing in aggressive cuts, leading to a debate on how much further the dollar is likely to fall.
Market Sentiment and Projections
With markets already pricing in aggressive cuts, debate is also focused on how much further the dollar is likely to fall. The decline accelerated after the Fed adopted an unexpectedly dovish tone and forecast 75 basis points in rate reductions for 2024 at its December policy meeting.
Contrasting Central Bank Policies
The Fed’s tone contrasted with other major central banks, including the European Central Bank (ECB) and Bank of England (BoE), which maintained they will hold rates higher for longer. However, market analysts anticipate that these banks may eventually capitulate and cut rates as well.
Performance Against Currencies
Against a basket of currencies, the greenback on Friday gained 0.13% to 101.32, rising from a five-month trough of 100.61 reached on Thursday. It is on track to lose 2.10% this year and is down 4.62% this quarter, the worst performance in a year.
Outlook for Other Currencies
The euro, sterling, and yen are also experiencing shifts in their performance against the dollar, reflecting changing market dynamics and expectations for central bank policies.
Market Expectations and Projections
Sterling rose 0.08% to $1.2745 and was on track for a 5.39% yearly gain, its best performance since 2017. Meanwhile, the yen is expected to post an annual 7.56% gain against the dollar, as the Japanese currency stays under pressure from the Bank of Japan’s ultra-loose monetary policy stance.
Market Sentiment on Cryptocurrencies
In cryptocurrencies, Bitcoin fell 1.23% to $42,059. It is on track for a 154% gain this year, reflecting the volatility and growth potential in the digital asset market.
Currency Bid Prices at 3:00PM (2000 GMT)
Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid
Previous Change
Session
These currency bid prices offer a snapshot of the market sentiment, reflecting the performance of major currencies against the dollar at a specific time.
