US Dollar tumbled most in a year as traders bet on the end of US hikes

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Federal Reserve will start cutting interest rates by mid-2024, sending Treasury yields plunging. A Bloomberg gauge of the dollar tumbled as much as 1.3 percent on Tuesday, the largest such drop since November 2022. It stayed close to the previous day’s close on Wednesday, helping propel the won and ringgit to the top of Asia’s currency rankings.

The moves followed a report that showed US headline and core inflation in October slowed more than economists had forecast. The release of the data set off a major shift across world financial markets, with traders anticipating that the Fed’s aggressive rate hikes will succeed in reining in the worst inflation surge since the 1980s. That sent bond yields sliding, sapping the incentive for overseas investors to shift money to the US and fueling a rally in risk assets like US and emerging-market stocks.

Track: Markets LIVE coverage here The dollar had rallied for much of this year on the back of rising Treasury yields. But that dynamic kicked into reverse Tuesday when the dollar lost ground against almost all of the world’s major currencies as traders priced in expectations that the Fed will cut its benchmark rate by about half a percentage point by July. “Over recent weeks, it seemed as if there was a reluctance to buy into the dollar on data which supported the Fed’s higher-for-longer narrative," Simon Harvey of Monex said.