The US dollar experienced a dip, hitting a three-month low against a mix of major currencies, before finding some stability in trading. This decline came as traders unwound their prolonged positions in the dollar ahead of upcoming inflation data releases from the US and euro zone.
The dollar index, which measures the dollar against six primary currencies, hovered at 103.17, slightly up from the 103.07 in Asian trading, marking its lowest level since August 31.
November seems poised to close with the dollar index showing a more than 3% decline, its most significant drop in a year.
Analysts like Simon Harvey from Monex Europe note the market’s anticipation of a shift in themes – specifically, expectations for monetary easing, improved conditions for risk assets, and a weaker dollar. However, recent trends suggest a potential stall in this direction.
Short-term focus remains on market sentiment. This month has seen a prevalent trade strategy: long equities and short dollar. Psychological thresholds, notably the euro approaching $1.0960, have presented barriers that the currency struggled to surpass in the past week.
The euro and sterling maintained their stability, with the euro hovering around $1.0954 and the pound at $1.2628, nearing their highest levels in three months.
The sentiment that the Federal Reserve’s interest rate hike cycle might have ended has contributed to the dollar’s downward trajectory. Market indicators suggest a possibility of rate cuts by the Fed, showing a 25% chance of rate decreases as early as March and potentially rising to 50% by May, according to the CME FedWatch tool.
Market participants eagerly await the US core personal consumption expenditures (PCE) price index, the Fed’s preferred gauge for inflation, scheduled for release this week. This data could offer additional insights into whether inflation in the world’s largest economy is decelerating.
This week holds a slew of other crucial economic events, including flash inflation data from significant euro zone economies, Chinese purchasing managers’ index (PMI) data, and an anticipated decision from OPEC+.
OPEC+, after postponing its policy meeting to Thursday, is contemplating deeper oil production cuts, as reported by Reuters, citing an OPEC+ source.
The Japanese yen displayed a modest strengthening at 148.45 per dollar, continuing its rebound from nearly hitting 152 per dollar earlier this month amid the dollar’s decline.
Meanwhile, the Swiss franc remained stable at 0.8810 per dollar, close to its firmest level since the beginning of September. Additionally, the Australian dollar briefly touched a near four-month peak of $0.6632.
The New Zealand dollar experienced a momentary surge, reaching its highest point since August 10 at $0.6114 before retracting. The Reserve Bank of New Zealand’s monetary policy meeting on Wednesday is anticipated to maintain interest rates at 5.50% for the fourth consecutive time.