The US Dollar (USD) experienced a decline against major currencies as traders priced in expectations for a Federal Reserve rate cut in December 2023. Reports indicate that month-end financial flows have contributed to the softer performance of the USD, while investor sentiment has shifted in anticipation of significant economic data set to be released in the coming days.
According to Scotiabank‘s Chief FX Strategists, Shaun Osborne and Eric Theoret, market participants are increasingly betting on a 0.25 percentage point cut at the Federal Open Market Committee (FOMC) meeting in December. This marks a notable change from just a week ago, when swaps indicated only a 40% probability of a reduction.
In a recent update, Timiraos of the Wall Street Journal noted on X that the groundwork has been laid for Federal Reserve Chair Jerome Powell to advocate for a rate cut if he chooses to do so, while suggesting that further cuts may not be likely under the current economic conditions.
The movement of Asian currencies has been particularly noteworthy, with the South Korean Won (KRW) standing out as the top performer. The Japanese Yen (JPY) rose by 0.5%, supported by comments from Japanese Minister Kiuchi, who emphasized a heightened awareness of currency fluctuations, signaling government concerns over Yen weakness.
High beta and commodity currencies are facing marginal declines as market risk appetite remains subdued. Notably, shares of NVIDIA have decreased in grey market trading, contributing to a mixed performance in European stock markets. US futures are also showing softer trends, indicating cautious trading sentiment.
The US Dollar Index (DXY), which gauges the value of the USD against six major currencies, is currently trading around 100.20, having halted a five-day upward streak. Analysts observe a technical softness in the DXY, with net losses reinforcing resistance in the low 100 range, a level where it previously peaked in August and November. Immediate support is noted at 99.75, while key support lies at 99.0. Historically, December tends to present negative seasonality for the DXY.
As the market prepares for the upcoming US Producer Price Index (PPI) report scheduled for release on Tuesday, the focus will remain on how these developments influence Federal Reserve policy decisions. With growing expectations for a rate cut, traders are on alert for any shifts in the economic landscape that could impact the USD and global markets.
