The US dollar extended its decline on Monday, falling to its lowest level in six-and-a-half weeks. This comes as investors increasingly expect the Federal Reserve to end its aggressive rate hike cycle sooner than previously thought.
The dollar index, which measures the greenback against a basket of six major currencies, eased 0.2% to 104.85. This follows a 1.4% plunge last week, its biggest weekly decline since July.
The euro gained 0.2% to $1.0756, its highest level since September 12. The British pound was also up, rising 0.3% to $1.2414.
The Japanese yen, which has been under intense pressure in recent months, weakened slightly against the dollar, trading at 149.47. However, the yen is still up significantly from its recent lows, having bounced back from a 32-year low of 151.74 per dollar last week.
The decline in the US dollar is being driven by a number of factors, including:
- Expectations of a Fed rate hike end: Investors are increasingly confident that the Fed is nearing the end of its aggressive rate hike cycle. This is after the central bank signaled a willingness to slow the pace of rate hikes at its most recent meeting.
- Signs of moderation in the US economy: A number of recent economic indicators have suggested that the US economy is slowing down. This has raised concerns about a potential recession, which would weigh on the US dollar.
- Strength in other currencies: Other currencies, such as the euro and the Australian dollar, have been strengthening in recent weeks. This is due to a number of factors, including improving economic conditions in these regions and expectations of less aggressive rate hikes from their respective central banks.
A sustained dollar selloff would require signs of improvement in the euro zone, China and other regions. However, the outlook for these regions remains uncertain, which could keep the dollar under pressure in the near term.
Impact on markets
The decline in the US dollar is having a positive impact on a number of markets. For example, stock markets around the world have rallied in recent weeks, as investors become more optimistic about the economic outlook.
The weaker dollar is also benefiting commodity markets, as it makes dollar-denominated commodities more attractive to overseas buyers. This has helped to boost the prices of oil, gold and other commodities.
Overall, the decline in the US dollar is a positive development for many markets. However, it is important to note that the dollar is still the world’s reserve currency, and a sustained selloff could have negative implications for the global economy.
This report was created by OXShare