The US dollar index has fallen to a five month low, suppressed by expectations of the Federal Reserve cutting interest rates soon.
The specific market situation shows that the US dollar index fell nearly 50 points to 100.97 within the day, falling below the 101 level for the first time since July 27th, with a decline of nearly 0.5%. In October this year, the US dollar index briefly rose to a high of 107.34 for the year, but since the market began to expect the Federal Reserve to end its interest rate hike and look towards a rate cut, the currency has accumulated a decline of over 600 points in less than three months.
Daily chart of US dollar index
It should be pointed out that the decline of the US dollar and the increase of other currencies have mostly occurred in the past few weeks. In October, traders began to speculate that the Federal Reserve had completed all rate hikes, and the dot matrix chart released by the bank at its mid December interest rate meeting hinted at "three rate cuts next year," strengthening the market's "dovish" expectations.
At the press conference, Federal Reserve Chairman Powell stated that interest rate cuts had begun to enter the picture, and decision-makers were considering and discussing when it was appropriate to cut rates. Although Powell maintained a more conservative tone, the market's optimism has exploded, and some well-known investment banks even speculate that the bank will cut interest rates 5 to 6 times, with the first time starting in March next year.
At the same time, inflation data such as the US PCE reflect that price increases are slowing down, while employment data points to a cooling of the labor market, causing the US dollar to fall by five weeks in the past six weeks. On the day, the Richmond Federal Reserve's manufacturing index for December fell to -11, the lowest level since May, further putting pressure on the US dollar.
The European currencies in Japan have collectively risen, with the euro rising nearly 0.6% against the US dollar at 1.1110, the highest level since July 27th, with a year-on-year increase of 3.8%; The pound also rose more than 0.5% against the US dollar to 1.2795.
Eurodollar weekly chart
Officials from the European Central Bank and the Bank of England have previously expressed their desire to maintain high interest rates for a longer period of time. DRW Trading strategist Lou Brien said that by comparison, the European Central Bank sounds slightly more hawkish than the Federal Reserve.
Shortly before publication, spot gold rose above $2080, the highest level since a record high at the beginning of the month. The US dollar fell more than 1.4% against the Swiss franc during the day and is currently at 0.8417, the lowest level since 2015. The Swiss franc exchange rate has risen by more than 9% this year, making it the best performing G7 currency in 2023.
USD/CHF monthly chart
During the year, the Japanese yen fell by 7.7% against the US dollar. Although the Bank of Japan has repeatedly mentioned that it is "close" to the end of its negative interest rate policy, it emphasizes that "there is no rush to make changes soon.".