(1) The U.S. dollar remained under pressure on Wednesday, with the euro near a four-month high, with expectations that the Federal Reserve will soon cut interest rates dominating the market, while thin money flows at the end of the year limited market movements.
(2) As many traders leave the market on holiday, the trading volume before the New Year may be relatively sluggish.
(3) The U.S. dollar index is now trading at 101.51, close to the five-month low of 101.42 hit last week. The U.S. dollar index may have fallen 1.9% this year, after two consecutive years of strong gains, driven by the Federal Reserve's interest rate hikes to fight inflation.
(4) The reason for the recent weakness of the US dollar is that the market expects the Fed to cut interest rates next year, which has weakened the charm of the US dollar. According to the Chicago Mercantile Exchange's (CME) FedWatch tool, the market is now pricing in a 79% chance that the Fed will cut rates starting in March 2024, with rates likely to be cut by more than 150 basis points next year. Data showing cooling inflation has raised bets on easing next year.
(5) Christopher Wong, foreign exchange strategist at OCBC Bank in Singapore, said, "Easing inflation has proven solid, and there are expectations that major central banks will pivot next year while economic growth is still faltering." "This paints a picture of a 'Goldilocks' market that favors risky assets. ”
(6) Both the Australian dollar and the New Zealand dollar hit new five-month highs earlier in the session. Meanwhile, the euro was flat at 1.1042, having touched a four-month high of $1.1045 on Tuesday. EUR/USD is up nearly 3% this year and is on track for a third straight month of gains this month, matching last year's winning streak.