Dollar Slips Lower as Federal Reserve Signals Less Hawkish Stance
Dollar Extends Declines on Weaker Federal Reserve Outlook
The U.S. dollar edged lower in early European trade on Monday, reaching a six-week low as it continued last week’s downward trend. This decline is a result of the Federal Reserve’s less hawkish stance on interest rate hikes.
According to the Dollar Index, which tracks the greenback against a basket of other currencies, the dollar dropped 0.1% to 104.782 at 03:20 ET (08:20 GMT). This marks its heaviest fall since mid-July, after experiencing a more than 1% drop last week.
Dollar Weakness Ahead of Fed Speakers
Since the Federal Reserve policy-setting meeting last week, the dollar has been on a decline. The central bank’s signals of a more dovish approach to interest rate hikes have contributed to this weakening trend.
Last Friday’s official jobs report further supported this tone, indicating slower growth than expected in the U.S. labor market. The Fed’s hawkish stance this year has been primarily driven by the strength of the labor market.
Market indicators suggest that there is now an 85% chance that the Fed has completed its hiking cycle and an 80% chance of rate cuts starting in June.
Throughout this week, there are at least nine scheduled speeches by Fed officials, including two appearances by Chair . The second appearance on Thursday will include a Q&A session.
Euro Climbs Despite Economic Weakness
The euro rose 0.1% to 1.0743, reaching levels not seen since September. This increase is primarily a result of the dollar’s weakness rather than any significant regional economic strength.
In September, German industrial production rose 0.2%, surpassing expectations of a 1.0% decline. However, this growth is still significantly lower than the revised 1.9% gain in August.
A survey by the Ifo economic institute revealed that Germany’s residential construction sector experienced a wave of cancellations in October. Higher interest rates and elevated construction prices were cited as contributing factors.
Sterling Edges Higher Ahead of GDP Data
Sterling rose 0.1% to 1.2384, continuing its strong rally from last week. This increase comes ahead of the release of Britain’s fourth-quarter GDP data later in the week.
Although the Bank of England (BOE) maintained interest rates last week and does not anticipate immediate cuts, the market has already priced in a rate cut for August.
The Australian dollar also rose 0.1% to 0.6514, trading close to a two-month high. This increase is based on expectations of a 25 basis point hike by the Reserve Bank of Australia (RBA) on Tuesday. Recent data has shown a rise in Australian consumer inflation, and retail sales unexpectedly grew in the third quarter.
In other currency news, the Japanese yen rose 0.1% to 149.58, while the Chinese yuan fell 0.3% to 7.2789. This week, all eyes are on Japanese and Chinese economic data, which is expected to provide more insight into their respective economic recoveries.
