Dollar Slides to Two-Month Low Amid Fed Speculation, Yen Gains Strength

Dollar Index

On Monday, the dollar index experienced a significant drop to its lowest point in over two months, extending a decline from the previous week. Investors are holding onto the belief that the U.S. Federal Reserve has concluded its cycle of interest rate hikes and are now assessing when the central bank might initiate rate cuts.

The dollar index reached a low of 103.46, marking its weakest level since September 1, following a nearly 2% decline last week—the most substantial weekly percentage drop since mid-July. Market sentiment reflects the consensus that additional Fed rate hikes are unlikely, given recent data indicating a slowdown in economic growth and moderate inflation pressures, not yet signaling a looming recession.

The Conference Board’s October leading economic indicator, released on Monday, showed a 0.8% decline, slightly below the estimated 0.7% decrease. The economic calendar remains relatively light due to the shortened workweek in the U.S. with the Thanksgiving Day holiday on Thursday.

Investors are now trying to gauge when the Fed might initiate rate cuts, with current pricing indicating a more than 50% chance of a cut of at least 25 basis points by May, according to CME’s FedWatch Tool.

Joseph Trevisani, senior analyst at, commented on the situation, stating, “The market is convinced, both credit, equities, and currencies 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 the minutes from the Fed’s latest meeting are set to be released on Tuesday. Investors will closely analyze these comments for any signals regarding the central bank’s policy path.

In contrast to the weakening 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. Against the yen, the dollar traded at 148.40 yen, reflecting a 0.81% decline.

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. Additionally, Moody unexpectedly upgraded the outlook on Italy’s ‘Baa3’ sovereign rating to stable from negative and upgraded Portugal’s rating by two notches to ‘A3.’

Sterling traded at $1.2485, showing a 0.18% increase for the day and reaching a two-month high of $1.2511.

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