Global Yields and GDP Could Weaken the Dollar

3 Oct 2024 , 10:44 AM

Traders deciding how to best play a falling US dollar are looking at the relative health of economies throughout the world, as global central banks lower interest rates, shaking up currency markets.

The US dollar index, opens in a new tab, lost 4.8% versus a basket of currencies in the third quarter of 2024, its lowest quarter in nearly two years. Pressure on the US dollar grew after the Fed announced a massive 50 basis point drop last month, its first since 2020.

The extent to which the dollar falls and which currencies benefit may be determined mostly by yields.

In September, eurozone inflation fell below 2% for the first time since mid-2021, boosting the case for the European Central Bank to lower interest rates this month, potentially weakening the euro.

Friday’s labour market data in the United States could help define expectations for how much the Fed will lower interest rates in the coming months.

Though futures markets have an extra 70 basis points of cuts priced in, a large figure might strengthen the case for more modest policy easing.

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