The US dollar fell to a three-month low against similar currencies on Tuesday after falling overnight on weaker-than-expected new home sales data, while traders stuck to bets that the Federal Reserve could start cutting interest rates in the first half of the year. next year.
Data showed new home sales in the United States fell 5.6 percent to a seasonally adjusted annual rate of 679,000 units in October, down from the 723,000 units forecast by economists polled , pushing Treasury yields lower.
The dollar index, a measure of the greenback against a basket of currencies, last hit 103.11, its lowest level since Aug. 31. The dollar is heading for a loss of more than 3 percent in November, its worst performance in a year.
Market expectations that the Fed’s rate hike cycle has come to an end have also put downward pressure on the greenback. U.S. interest rate futures showed a nearly 25 percent chance that the Fed will start cutting interest rates as early as March and increase them to nearly 45 percent by May, according to CME FedWatch.
Kyle Rhoda, chief financial market analyst said: “Slowing growth momentum, peak rates, interest rate cuts next year, and the dismantling of long positions: it’s the dynamic that fuels the weaker US dollar and drives the entire currency pool.”
“Anything that puts this trend in doubt will change the outlook, however, the barrier for that to happen is high,” he said, saying the dollar likely has more room to fall.
Inflation expected to slow and major economic moves this week
Traders are now looking to the US Core Personal Consumption Expenditure (PCE) Price Index – the Fed’s preferred measure of inflation – this week to further confirm that inflation in the world’s largest economy is slowing.
The PCE index is leading a series of other major economic events this week, including Chinese Purchasing Managers’ Index (PMI) data and the OPEC+ decision.
After postponing the policy meeting to Thursday, OPEC+ is looking to deepen oil production cuts, according to an OPEC+ source.
The Australian dollar briefly touched a three-and-a-half-month high of $0.66155 before pulling back to $0.66105. Data released Tuesday morning showed that domestic retail sales in October fell from the previous month.
The New Zealander also hit its highest level since August 10 at $0.61055 before falling to $0.61005. The Reserve Bank of New Zealand will hold its monetary policy meeting on Wednesday, where it is expected to keep interest rates steady at 5.50 percent for the fourth time in a row.
Elsewhere, the yen settled around 148.10 as the dollar’s recent weakness continued to give the Japanese currency some room to breathe.
Although the Fed’s mission may be over, expectations are growing for the Bank of Japan to finally begin to exit its overly loose monetary policy; more than half of economists polled by Reuters expect the BoJ to take the move at its April meeting.
Tony Sycamore, market analyst at IG, wrote in a note that the dollar “still has a significant yield advantage over the yen.” “We believe a strong pullback is unlikely unless (USD/JPY) breaks the trend channel support at the 146.50/30 area.”
