Dollar struggles in early trade amid anticipation of a rate decrease

20 Dec 2023 , 09:42 AM

In advance of inflation statistics later this week, traders continued to sell the US dollar on speculations that the US Federal Reserve would soon start lowering interest rates, which caused the US dollar to weaken against most major currencies on Wednesday.

The yen was an exception, as the dollar maintained its strength against it following the Bank of Japan’s silence on ending its extremely loose monetary policy the day before.

Following the Federal Open Market Committee meeting last week, which resulted in three rate cuts scheduled for 2024 and a surge in financial markets, Fed officials have been reversing course.

The CME FedWatch tool indicates that market players are pricing in a 67.5% possibility of the first rate decrease occurring at the Fed’s March meeting.

Although Raphael Bostic, the president of the Atlanta Federal Reserve, reiterated on Tuesday that he believes there is no ‘urgency’ at this time and that two rate cuts are most likely to occur in the second half of the year.

Thomas Barkin, the president of the Richmond Fed, stated that the performance of the economy would determine if the central bank can meet its rate-cutting projections on the same day.

After falling more than 0.3% on Tuesday and reaching a four-month low of 101.76 last week, the dollar index was almost steady at 102.20 as of last writing.

This week’s release of the core Personal Consumption Expenditures (PCE) price index, the Fed’s preferred gauge of underlying inflation, could shed light on whether inflation has decreased sufficiently for the Fed to start relaxing policy next year.

The Japanese yen dropped as low as 144.95 the day before, but the dollar kept the yen locked lower at 143.78 yen.

Prior to the Bank of Japan’s announcement of its monetary policy, the yen was trading in the low 142 region. It then declined as Kazuo Ueda, the head of the Japanese central bank, provided no indications that negative interest rates will soon expire.

In other news, the euro remained stable at $1.0973, while sterling last traded at $1.2724, having gained ground on Tuesday’s decline in the value of the dollar.

Bitcoin saw a 0.44% increase in value at $42,446.00 last time.

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