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The US dollar price faced a downward spiral, hitting a low not seen in over two months on Monday. Traders convinced that U.S. rates have reached their peak, focused on speculating when the Federal Reserve might initiate rate cuts. The US Dollar commences the week on a downtrend, hitting a fresh two-month low. Traders foresee potential rate cuts from major central banks, adding to the pressure on the currency.
The dollar index, in European trade, plummeted to 103.46, marking its weakest level since September 1. This decline, nearly 2% from the previous week, signifies the sharpest fall since July.
US Dollar Price Impact on Euro & Yen
Against this weakened dollar, the euro climbed to $1.0937, its highest since August, while the yen surged to a 6-1/2 week high of 148.1 per dollar.
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Market sentiments discounted further rate hikes by the Fed following a string of weaker-than-anticipated U.S. economic indicators. The focus now shifts to the likelihood of the Fed initiating rate cuts, with futures indicating a 30% chance of cuts as early as March.
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Expert Insights and Technical Outlook
Dane Cekov, Nordea’s senior FX strategist, attributed the dollar’s weakness to the recent moves in rate markets, coupled with last week’s underwhelming CPI. He suggests potential short-term dollar weakness but notes oversold conditions against the euro, typically leading to consolidation.
The upcoming release of minutes from the Fed’s recent meeting might shed light on policymakers’ stance as they maintained steady rates for a second consecutive month.
US Dollar Price Currency Movements
While sterling remained stable, the euro held at $1.0926 before impending flash PMI readings in the eurozone. Moody’s surprising upgrades to Italy’s sovereign rating to stable from negative and Portugal’s rating to ‘A3’ also influenced the euro’s outlook positively.
The Japanese yen stayed strong, hovering around 148.42 per dollar. Elsewhere in Asia, the yuan surged to a more than three-month high against the dollar in both onshore and offshore markets.
China’s Economic Scenario
China left its benchmark lending rates unchanged, aligning with expectations. The yuan’s ascent, however, mirrored a weaker economic recovery and remained under pressure due to fragile investor sentiment.
Carol Kong, a currency strategist at the Commonwealth Bank of Australia, predicts a persistent theme of a subdued Chinese economic recovery, impacting the yuan, Aussie, and kiwi currencies in the near term.
Technical Indicators Flash Warning Signals
The US Dollar Index (DXY) hovers above 103.00 but faces potential further decline toward 101.00 if selling pressure persists. Crucial technical indicators that historically denote support or resistance have been breached, indicating a possible prolonged downturn for the Greenback.
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With a sparse economic calendar for the week, the current downturn in the Greenback might sustain without significant catalysts for a reversal.
Upcoming Events
The week’s schedule includes FOMC Fed Meeting Minutes, University of Michigan’s final November data, and flash S&P Global Purchase Managers Index (PMI) numbers, although Thursday’s national holiday might dampen market activity.
Geopolitical tensions escalate as rumours of a five-day ceasefire agreement surface, with the US yet to confirm. Additionally, an incident involving the seizure of a tanker in the Strait of Hormuz by Iran-backed rebels affects market sentiments.
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The US Treasury schedules auctions for 3-month and 6-month bills, along with a 20-year bond auction, influencing market liquidity and investor sentiment.
Read More: Market News Ahead: U.S. Inflation Data: Fueling Speculation
US Dollar Price Outlook
Traders observe the 100-day SMA and anticipate a recovery bounce, aiming for the 55-day SMA. However, a sustained decline below these levels may lead to a significant downturn, potentially testing the psychological 100-level mark.
In a week with limited economic events and reduced market participation due to holidays, the US Dollar faces the possibility of substantial declines.
Impact of PBoC’s Actions on Chinese Yuan
Overnight, the People’s Bank of China (PBoC) strengthened the Yuan, causing a significant rise against the US Dollar. The Japanese Yen also records a substantial gain against the Greenback.
Equities seek direction amid uncertainty about a potential recession and the timing of central bank interest-rate cuts. The Hang Seng Index notably climbs by nearly 2% amidst this uncertainty.
Market indicators, like the CME Group’s FedWatch Tool, suggest a high likelihood of the Federal Reserve maintaining unchanged interest rates in December, with a minor percentage anticipating a rate cut. The benchmark 10-year US Treasury Note yield trades at 4.45%.
