© Reuters. FILE PHOTO: In this illustration taken July 17, 2022, U.S. dollar and euro bills are seen. REUTERS/Dado Ruvic/Illustration/File Photo
By Chuck Mikolajczak
NEW YORK (Reuters) – It fell to its lowest level in more than two months on Monday, extending a decline from the previous week as investors maintained the belief that the U.S. Federal Reserve had ended its cycle of rate hikes. interest and evaluated when the central bank can start reducing rates.
The dollar index hit a low of 103.46, its weakest level since Sept. 1, after a nearly 2% drop last week, which marked the biggest weekly percentage drop since mid-July.
Markets have ruled out any further Fed rate hikes as recent data has shown a slowdown in the economy and inflationary pressures, but not enough to raise fears that a sharp recession is looming.
On Monday, the Conference Board’s leading October economic indicator showed a decline of 0.8%, slightly below the estimate calling for a 0.7% decline.
The economic calendar is relatively light due to the shortened work week in the US with the Thanksgiving holiday on Thursday.
Markets are now trying to determine when the Federal Reserve may begin cutting rates and are currently pricing in a better than 50% chance of a cut of at least 25 basis points by May, according to CME’s FedWatch tool.
“The market is convinced, both credit and stocks and currencies, that the Fed is done raising rates, but the Fed is not willing to say it. We all know it, we’ve seen it before, we’ve heard it before”. said Joseph Trevisani, senior analyst at FXStreet.com.
“So we’re seeing a gradual weakening of the dollar, simply because the Fed is doing everything it can to prop up rates, not necessarily the dollar, but to prop up rates.”
Federal Reserve Bank of Richmond President Thomas Barkin is scheduled to speak later Monday.
Additionally, minutes from the Federal Reserve’s latest meeting are scheduled to be released on Tuesday, and investors will scrutinize the comments for any signs about the central bank’s policy path.
Against the weaker dollar, the euro hit its highest level since Aug. 30 at $1.0945, while the yen strengthened to a six-and-a-half-week high of 148.09 per dollar. Against the yen, the dollar was trading at 148.40 yen, 0.81% less.
The euro has been strengthening on expectations that the European Central Bank (ECB) is operating with a lag behind the Federal Reserve and will keep its rate hike cycle intact once the Fed is done.
Additionally, Moody’s (NYSE:) unexpectedly upgraded the outlook for Italy’s ‘Baa3’ sovereign rating from negative to stable and upgraded Portugal’s rating by two notches to ‘A3’.
The pound was trading at $1.2485, up 0.18% so far this day, after hitting a two-month high of $1.2511.