Dollar falls to two-month lows; Fed minutes loom large

By OXShare

In the beginning of European trade on Monday, the value of the U.S. dollar dropped to its lowest point in over two months. This decline further contributed to the significant losses it experienced last week, as there is now a growing belief that the Federal Reserve has finished raising interest rates.

The Dollar Index, which monitors the performance of the US dollar compared to six other currencies, dropped by 0.3% to 103.505 at 03:20 ET (07:20 GMT). This puts it slightly higher than its lowest point in late August, after experiencing a nearly 2% decrease last week. This decline marks the most significant weekly drop since July.

Dollar on back foot

In the past week, the dollar has been in a weak position due to poor labor market and inflation data. This has led traders to believe that the Federal Reserve may not increase interest rates any further and may even reduce rates starting in March next year.

The analysts at ING stated in a note that the weakening of the dollar has affected various currencies, including the Japanese yen, which has gained some support despite its lack of popularity.

The main attention has shifted to the minutes of the Federal Reserve’s meeting in late October, which will provide further information about monetary policy. These minutes are scheduled to be released on Tuesday.

According to ING, in this meeting, the Federal Reserve maintained its stance of tightening but also recognized that tighter financial conditions were helping to achieve the desired outcomes. ING suggests that the market is anticipating some news that shows a more accommodative approach from the Fed, which could potentially negatively affect the value of the dollar.

The Euro is strengthening even though German producer prices are declining.

In European markets, the euro strengthened by 0.2% against the US dollar, reaching a rate of 1.0926. Despite a decrease in German producer prices by 11.0% on a yearly basis in October, primarily due to a significant drop of 27.9% in energy prices, the euro remained resilient, benefiting from the weakened dollar.

This came after eurozone consumer prices were officially declared to be 2.9% on a yearly basis last week, a decrease from 4.3% the month before.

However, several ECB officials have expressed the importance of maintaining interest rates at higher levels due to the ongoing issue of high inflation.

In a speech on Friday, Joachim Nagel, President of the Bundesbank, stated that it would not be wise to begin reducing interest rates too early. He emphasized the importance of ensuring long-term price stability before considering any policy relaxation.

The value of the British pound against the US dollar increased by 0.3% to reach 1.2492, close to its highest level in two months. This rise occurred in anticipation of a speech by Bank of England Governor Andrew Bailey, scheduled for later in the day.

In October, the U.K. Consumer Price Index (CPI) experienced a significant drop, falling to 4.6% on a yearly basis. This marks the largest decrease in the annual CPI rate from one month to the next since April 1992, when comparing it to the previous month’s rate of 6.7% in September.

Despite being among the highest in the developed world, the rate of inflation in the U.K. has not prompted the Bank of England to consider reducing interest rates.

Yuan, yen benefit from dollar weakness

In Asia, the exchange rate of USD to CNY decreased by 0.6% to 7.1712, while the value of the yuan against the dollar increased to its highest point since early August.

On Monday, the loan prime rate of The People’s Bank of China was maintained at historically low levels. Additionally, approximately 80 billion yuan of liquidity was injected into the economy.

Independently, Chinese authorities promised additional policy assistance for the troubled real estate market in the country — an action that boosted trust in one of China’s largest sectors.

The USD/JPY currency pair decreased by 0.8% and reached 148.41. This marks the first time in nearly three weeks that it has strengthened below the 150 level against the US dollar. Traders are feeling less concerned about additional interest rate increases in the United States.