Rate cut bets put the dollar under pressure in the slender holiday market

27 Dec 2023 , 09:31 AM

 With light year-end flows limiting fluctuations, the dollar continued to face resistance on Wednesday while the euro flirted with a four-month peak as anticipation that the Federal Reserve would soon cut interest rates took hold in the market.

Due to traders’ worldwide vacations over the New Year, the week that was shortened is probably going to experience low volume.

The dollar index, which compares the value of the American dollar to six competitors, was trading at 101.54, not far from the five-month low of 101.42 it reached last week. After two years of solid growth due to the Fed’s rate hikes to combat inflation, the index is expected to fall 1.9% in 2023.

The markets’ expectation of rate cuts from the Fed in 2019 has caused the dollar to weaken recently, lessening the value of the greenback.

According to the CME FedWatch tool, markets are currently pricing in a 79% chance of a rate cut beginning in March 2024, with cuts of up to 153 basis points priced in for the following year.

On Tuesday, the euro reached a four-month high of $1.1045, but it was down 0.07% to $1.1034. With a rise of about 3% so far this year, the single currency is expected to repeat its previous year’s run of gains in the third consecutive month.

The Asian currency has had a recent surge in value as traders bet that the Bank of Japan will soon end its ultra-loose policies, but the Japanese yen fell 0.17% to 142.64 per dollar and is expected to decline by 8% this year.

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