Dollar drops to 3-month low, heading for biggest monthly fall in a year

The U.S. dollar sank to a three-month low on Tuesday, as investors continued to take the view that growth in the world’s largest economy is starting to slow down after an aggressive tightening cycle since March last year.

That slowdown should prompt the Federal Reserve to begin easing some time next year. U.S. rate futures were pricing in a 23% chance of a rate cut in March, rising to a roughly 50% probability in May, according to the CME’s FedWatch tool.

The dollar index, which measures its value against six major currencies, fell as far as 102.89, the lowest since Aug. 31. It was last down 0.41% at 12.78. The index is on track for a loss of more than 3% in November, its worst performance since November 2022.

For several decades now, the dollar has tended to outperform when the U.S. economy is extremely weak or extremely strong relative to the rest of the world, and has typically fallen during circumstances resembling those now in play – when most major economies are simply muddling through, and growth gaps (between the U.S. and the rest of the world) are narrowing,” said Karl Schamotta, chief market strategist at Corpay in Toronto.

“We’re seeing outbound dollar flows grow on a consistent basis ahead of year-end as investors rebalance portfolios to take advantage of an expected decline in 2024.”

Tuesday’s U.S. data, however, continued to trend in a positive direction. U.S. consumer confidence rose in November after three straight monthly declines, though households continued to anticipate a recession over the next year, a survey showed.

The Conference Board said its consumer confidence index increased to 102.0 this month from a downwardly revised 99.1 in October.

U.S. annual home price growth accelerated again in September, underscoring a rebound in the housing market as it entered the final quarter of the year.

Home prices were up 6.1% on a year-over-year basis in September, up from an upwardly revised 5.8% increase in August, the Federal Housing Finance Agency (FHFA) said.

In other currencies, the euro rose to $1.0986, up 0.30%.

Sterling also gained, climbing to its highest since Sept. 1. The pound was last up 0.52% at $1.2691.

Traders are now eyeing the U.S. core personal consumption expenditures (PCE) price index – the Fed’s preferred measure of inflation – this week for more confirmation that inflation is slowing.

PCE tops off a slew of other key economic events this week, including flash inflation data from major euro zone economies, with bloc wide data due Thursday, Chinese purchasing managers’ index (PMI) data and an OPEC+ decision on crude output.

The dollar fell 0.73% to 147.58 yen, with the Japanese currency continuing its recovery from the brink of 152 per dollar earlier in the month.

The dollar also slid 0.2499% to 0.878 Swiss francs and the Australian dollar gained 0.61% to US$0.6646.

The New Zealand dollar was last at US$0.6129, up 0.54%. The Reserve Bank of New Zealand has its monetary policy meeting on Wednesday, where it is expected to keep interest rates steady at 5.50% for the fourth straight time.

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