Dollar falls in early trade with US rates surge

21 Nov 2023 , 10:00 AM

With investors anticipating a decline in U.S. interest rates next year, the dollar was on the defensive and trading near multi-month lows against the euro and several other major currencies on Tuesday.

The dollar index fell below its 200-day moving average on Monday after a surge in the value of the yuan sparked more widespread weakening, albeit early Asian trading saw only minor movements.

Last week, the index, comparing the dollar to a basket of six major currencies, dropped by 1.9% in sync with a notable rise in US Treasury prices.

With a little assistance from dependable hawk Pierre Wunsch, a member of the European Central Bank, who resisted market expectations for rate cuts as early as April, the euro hit a three-month high of $1.0952 on Monday.

On Monday, the central bank steered the yuan higher, and it also reached a three-month high against the dollar. The New Zealand and Australian dollars had done the same.

The Conference Board’s October leading economic indicator, a measure of the US recession, fell by 0.8% on Monday, marking the 19th consecutive month of declines.

There is a one in four possibility that there will be an easing beginning in March, and the markets have almost priced in the danger of another hike in December or next year. Additionally, futures suggest roughly 90 basis points of cuts for 2024, up from 77 basis points prior to the markets being rattled by a benign U.S. inflation report in October.

Tuesday morning’s light offshore activity saw the yuan hold its gains at 7.1640 per dollar.

Just behind the three-month high of $0.6564 set on Monday, the Australian dollar was slightly stronger at $0.6561. At $0.6040, the New Zealand dollar remained stable.

Even the yen rose overnight to a seven-week high of 148.1 per dollar, where it remained stable on Tuesday at 148.3.

As Japan maintained its ultra-easy policy despite rising U.S. interest rates, the yen lost value this year, plunging 11.6% against the dollar and creating a significant spread in government bond yields. Notably, it increased by about 3% in just one week, especially considering that positioning data indicated an increase in yen shorts last week..

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