Dollar wavers on rate cut expectations in thin holiday market
By Ankur Banerjee
SINGAPORE (Reuters) -The dollar remained under pressure on Wednesday and the euro was close to a four-month peak, as expectations that the Federal Reserve would soon cut interest rates took hold in the market, with thin year-end flows keeping movements limited.
With many traders out for holidays, volumes are likely to be muted until the New Year.
The dollar index, which measures the U.S. currency against six rivals, was at 101.47, just shy of the five-month low of 101.42 it touched last week. The index is on course for a 1.9% drop in 2023 after two straight years of strong gains, driven by first the anticipation of and then the actual hiking of rates by the Fed to battle inflation.
«With little to speak of on the economic calendar for this week between global holidays, we do not expect a large swing in pricing to wrap up this calendar year,» analysts at Monex USA said in a note.
The recent weakness in the dollar — the index is set to clock a second straight month of losses — has been the result of the markets anticipating rate cuts from the Fed next year, denting the appeal of the greenback.
Markets are now pricing in a 79% chance of a rate cut starting in March 2024, according to CME FedWatch tool, with over 150 basis points of cuts priced in for next year.
Data showing cooling inflation has emboldened bets of easing next year.
«Disinflation is proving entrenched (and) expectations are for central banks to pivot next year while growth is still trudging along,» said Christopher Wong, a currency strategist at OCBC in Singapore.
«This paints a goldilocks market that is favourable for risk proxies.»
The Australian dollar and the New Zealand dollar both touched a fresh five-month peak earlier in the
Read more on investing.com
