Dollar is heading for a three-month low; Investors pay attention to inflation statistics

30 Nov 2023 , 10:14 AM

Ahead of an important inflation report later in the day, investors increased their bets that the Federal Reserve is done raising interest rates, sending the dollar to a near three-month low on Thursday and likely to see its worst monthly fall in a year.

The dollar index, which compares the value of the US dollar to six competitors, decreased by 0.058% to 102.74 on Wednesday, not far from 102.46, which was its lowest level since August 10.

November saw a 3.7% decline in the index due to increased expectations that the Fed will lower interest rates in the first half of 2024.

On Wednesday, the dollar recovered some of its losses following statistics that revealed the third-quarter growth rate of the US economy was higher than first thought.

Investor attention will be focused on remarks made by Fed Chair Jerome Powell, who is scheduled to speak on Friday. This comes after Fed Governor Christopher Waller hinted on Tuesday that a rate decrease may occur in the coming months.

However, the important personal consumption expenditure (PCE) inflation report on Thursday will take centre stage before anything else.

The majority of Asian and regional currencies have benefited from the dollar’s decline. The New Zealand dollar and the Japanese yen are two of the top performers, and they are at complete opposite ends of the ‘carry’ spectrum.

The central bank’s ‘hawkish hold,’ which maintained the benchmark cash rate at a relatively high 5.50% but unexpectedly hinted that it would be raised again if inflation doesn’t reduce, gave the kiwi an extra boost on Wednesday.

The value of the currency increased by 0.26% to $0.6172, remaining near the four-month high of $0.6207 that it reached on Wednesday.

The yen has recovered from its lows due to anticipation that the Bank of Japan will soon abandon its negative rate policy, which has also reduced pressure on the central bank to directly intervene in the FX market to support the currency.

The yen gained 0.09% on Thursday to trade at 147.11 against the dollar, staying near the two and a half month high of 146.675 that was reached on Wednesday.

The euro was up 0.06% at $1.0975 while the sterling was up 0.01% on the day at $1.2695. At $0.6623, the Australian dollar increased by 0.08%.

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