Fed’s dovish pivot triggers dollar’s biggest weekly fall since July; rupee fails to capture gains
US Federal Reserve. Among other major currencies, the euro and pound rose on Friday as the central banks in Europe stuck to their hawkish paths. The US dollar index, which measures the greenback's strength against a basket of six currencies, eased by 0.02% to 101.94, not far from the four-month low of 101.76 it touched on Thursday.
The index is down nearly 2% and set for its steepest weekly decline since July. The drop in the greenback comes after the dovish rate pause delivered by the US Fed this week, signaling 75 basis points (bps) rate cuts for 2024, surprising markets. Federal Reserve Chair Jerome Powell said at Wednesday's meeting that the tightening of monetary policy is likely over citing a faster decline in inflation, with a discussion of cuts coming “into view".
Also Read: Higher for longer? What's that, asks the Fed The dovish tone by the Fed also led to a drop in US Treasury yields, with US benchmark 10-year yields sinking to their lowest since July on Thursday at 3.885%. They were last at 3.947% in Asian hours. “The dollar index dropped below 102 and is on course to lose about 2% this week, pressured by the prospect of interest rate cuts from the Fed next year.
Markets are now pricing in a 75% chance that the Fed would cut rates in March. Stronger than expected US retail sales and a decline in weekly jobless claims also did little to alter rate cut expectations. Meanwhile, both the ECB and the BOE maintained their policy rates, but pledged to keep them at elevated levels to address inflation," said Jigar Trivedi, Senior Research Analyst - Currencies & Commodities, Reliance Securities.
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