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BLOOMBERG
The dollar dropped to a four-month low as traders digested the clearest signal yet that the Federal Reserve’s aggressive hiking campaign is over.
The Bloomberg Dollar Spot Index dropped as much as 0.5% to its lowest since August on Thursday, extending losses from the day prior after Fed officials penciled in a sharper pace of rate cuts than they had seen in September. The US central bank kept rates steady for a third consecutive time.
While Chair Jerome Powell indicated they are still prepared to hike again if price pressures return, Fed officials have pretty much signalled the end of the tightening cycle.
Policymakers are now turning their focus to when to start cutting rates as inflation continues its descent toward their 2% goal, Powell said.
“The decisive Fed pivot to rate cuts has pretty comprehensively undercut near-term US dollar prospects,” Richard Franulovich, head of FX strategy at Westpac Banking in Sydney, wrote in a note to clients. “While the door is now wide open to the long awaited big turn in the dollar we still think it is going to take time to develop.”
Rate cuts by the Fed will help narrow the dollar’s yield premium versus its peers, undermining the greenback’s appeal. The dollar is on track for its second-consecutive monthly loss after notching its biggest monthly drop in a year in November — a decline of 3%.