US Dollar suffers a worst blow
On Monday, the US Dollar (USD) index hit its lowest point in over two months, continuing a decline from the previous week. Investors maintain the belief that the U.S. Federal Reserve has concluded its interest rate hike cycle and are now assessing when the central bank might initiate rate cuts.
The US Dollar index reached a low of 103.46, its weakest level since September 1, following a nearly 2% drop last week, marking the most significant weekly percentage decline since mid-July. Market sentiment has ruled out further Fed rate hikes, given recent data indicating a slowdown in the economy and inflation pressures, although not enough to raise concerns of an imminent recession.
On Monday, the Conference Board's October leading economic indicator revealed a 0.8% decline, slightly below the estimated 0.7% decrease. With the Thanksgiving Day holiday shortening the work week in the U.S., the economic calendar is relatively light. Markets are now speculating on when the Fed might start cutting rates, currently pricing in a greater than 50% chance of a cut of at least 25 basis points by May, according to CME's FedWatch Tool.
Joseph Trevisani, a senior analyst at FXStreet.com, noted, "The market is convinced that the Fed has finished raising rates, but the Fed is not willing to say so. We all know this, we've seen this before, we've heard it before." Federal Reserve Bank of Richmond President Thomas Barkin is scheduled to speak later on Monday, and minutes from the Fed's latest meeting are set to be released on Tuesday, with investors scrutinizing comments for any signals on the central bank's policy path.
Against the weakened dollar, the euro reached its highest level since August 30 at $1.0945, while the yen strengthened to a 6.5-week high of 148.09 per dollar. The dollar traded at 148.40 yen, down 0.81%. The euro's strength is attributed to expectations that the European Central Bank (ECB) will maintain its rate hike cycle after the Fed concludes its own.
Moody's unexpected upgrade of Italy's sovereign rating to stable and Portugal's rating by two notches to 'A3' also influenced market dynamics. Sterling traded at $1.2485, up 0.18% on the day, reaching a two-month high of $1.2511.