The dollar is weakening as attention shifts to Fed easing

20 Nov 2023 , 09:50 AM

The dollar struggled to gain traction on the belief that U.S. rates have peaked on Monday, languishing close to a two-month low against its major counterparts. Instead, investors are now focused on the potential timing of the Federal Reserve’s monetary policy ease.

In Asia, however, a crucial rate decision from China grabbed centre stage. On Monday, lending benchmark rates are expected to remain unchanged by Beijing at their monthly fixing.

The euro held steady against the dollar ahead of flash PMI figures for the euro zone that are expected later this week, hovering around a two-month high that was achieved on Friday. The euro last purchased $1.0900.

The dollar index, which compares the US dollar to a basket of six other currencies, increased by 0.04% to 103.95, but it was still unable to overcome the two-month low of 103.79 set last week.

A series of less-than-expected U.S. economic data points, most notably an inflation reading that came in below projections, caused markets to price out the chance of additional rate hikes from the Fed. As a result, the index dropped by about 2% last week, marking its biggest weekly slide since July.

The focus now shifts to the potential timing of the first rate cuts. The CME FedWatch tool indicates that futures pricing places a 30% likelihood that the Fed may start decreasing rates as early as next March.

The Japanese yen, which was trading at 149.90 per dollar at the end of last week, had some respite from the decrease in the value of the US dollar. It was trading near 150 per dollar.

Although sterling fell 0.06% to $1.24545, it was still very close to the two-month high of $1.2506 reached last week.

The offshore yuan strengthened close to a three-month high vs the dollar ahead of China’s lending prime rate (LPR) announcement later in the day, and it was last trading at 7.2214 per dollar.

The New Zealand dollar dropped 0.04% to $0.5990, while the Australian dollar, which is frequently used as a liquid stand-in for the yuan, dropped 0.17% to $0.6504.

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