Investing.com – The U.S. dollar fell to more than two-month lows in early European trading Monday, adding to last week’s sharp losses as expectations rose that the Federal Reserve has completed its rate hike cycle.
At 03:20 ET (07:20 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, fell 0.3% to 103.505, just above its lowest level. since late August, extending its nearly 2% drop from last week – the steepest weekly drop since July.
The dollar on the defensive
The dollar has been on the defensive for most of the last week, after a series of weak labor market and inflation readings caused traders to price in an even greater possibility that the Federal Reserve was done raising rates. interest rates and that the central bank could begin to raise interest rates. cut rates starting March next year.
“The dollar’s decline has been broad-based, meaning even the unloved Japanese yen has found some friends,” ING analysts said in a note.
Attention is now largely focused on the Federal Reserve’s late October meeting for more clues on monetary policy, due to be released on Tuesday.
“This was the meeting where the Fed maintained its restrictive bias but included a recognition that tighter financial conditions were doing part of the Fed’s job,” ING added. “The market seems to be in the mood to watch out for some dovish headlines here, and this may result in a negative event risk for the dollar.”
Euro rises despite falling producer prices in Germany
In Europe, it rose 0.2% to 1.0926, benefiting from dollar weakness even after falling 11.0% year-on-year in October, helped by a 27.9% year-on-year drop in energy prices.
This came after 2.9% annual growth was confirmed last week, compared to 4.3% the previous month.
However, several ECB authorities have wanted to emphasize the need to keep interest rates at relatively high levels while inflation remains high.
“It would be unwise to start cutting interest rates too soon,” Bundesbank President Joachim Nagel said in a speech on Friday. “We should not relax policy until we are absolutely sure of returning to lasting price stability.”
rose 0.3% to 1.2492, near a two-month high, and the Bank of England governor will speak later in the session.
fell to 4.6% annually in October, from 6.7% in September, the largest month-over-month drop in the annual CPI rate since April 1992.
However, UK inflation remains among the highest in the developed world, and the Bank of England has sought to emphasize that it is nowhere near cutting interest rates.
Yuan and yen benefit from dollar weakness
In Asia, it fell 0.6% to 7.1712, and the yuan rose to its highest level against the dollar since early August.
The People’s Bank of China kept its benchmark near record lows on Monday, while injecting about 80 billion yuan of liquidity into the economy.
Separately, Chinese officials pledged more policy support for the country’s beleaguered real estate sector, a move that helped shore up confidence in one of China’s biggest industries.
was trading 0.8% lower at 148.41, strengthening below the 150 per dollar level for the first time in almost three weeks, and traders are becoming less fearful of further rate hikes in the United States.