Dollar declines as markets assume the Fed will stop raising rates

15 Nov 2023 , 10:12 AM

After falling sharply overnight, the dollar stumbled around generally lower levels on Wednesday as expectations that the Federal Reserve has completed its cycle of monetary tightening were reinforced by an unexpectedly softening estimate on U.S. inflation.

The euro is currently trading slightly below its Tuesday peak, which was reached after the dollar’s sell-off propelled a surge in many of its rival currencies.

Data indicating U.S. consumer prices were stable in October and the annual rise in underlying inflation was the lowest in two years was the catalyst for the frenzied action in the currency market. The CPI increased 3.2% in the 12 months ending in October, which was less than predicted by economists, following a 3.7% increase in September.

According to the CME Group’s FedWatch Tool, the data led market participants to almost exclude the possibility of another rate hike at the Fed’s December monetary policy meeting, while bets on a rate cut in May of the next year surged to over 50%.

In response to the sudden change in market pricing, traders sent the dollar down 1.5% against key currencies overnight. The dollar was strengthened at the same time that U.S. Treasury yields fell.

Just off its two-month bottom of 103.98 on Tuesday, the dollar index, which evaluates the value of the currency against a basket of peers, was last seen in the Asian morning at 104.13.

With the dollar losing ground, the euro closed at $1.0873, having reached its highest level since August previous day.

At $1.2484, the pound was trading at levels last observed in September.

The yen’s decline overnight helped it recover slightly from Monday’s new one-year low of 151.92, which was reached by the greenback.

That respite, though, was fleeting as the dollar/yen recently traded at 150.54, edging up somewhat from Tuesday’s close.

The Australian dollar was down 0.2% against the US dollar at $0.64925 elsewhere, despite figures indicating that last quarter’s salary boost was the biggest on record.

For feedback and suggestions, write to us at [e-mail]