The US dollar continued to fall against a basket of currencies on foreign exchange markets today, hitting another five-month low. However, it managed to erase losses against the euro. Behind the dollar’s decline is the expectation that the US Federal Reserve (Fed) will cut base rates next year.
Dollar Index Decline
The dollar index, which measures the value of the dollar against a basket of six major world currencies, was losing about 0.1 percent shortly after 5 p.m. CET, hovering around 100.90 points. It fell as low as 100.61 points during the day and has lost about 2.6 percent since the start of this year. It is thus on track to post its first full-year loss after two years of strong growth.
Euro’s Fluctuation
The euro weakened 0.1 percent against the dollar to $1.1095 at the same time, but rallied to a five-month high of $1.1139 overnight. The euro has gained 3.6 percent against the dollar since the start of the year, the best performance for the single European currency since 2020. The dollar was down 0.4 percent against the Japanese yen to 141.06 yen, while the euro lost 0.5 percent against the yen to trade at 156.48 yen.
Reasons Behind Dollar’s Weakness
The dollar is weakening mainly because expectations have grown among investors since the Fed’s monetary policy committee met in December that U.S. interest rates will fall next year. According to Reuters, markets are now estimating that the Fed will take its first interest rate cut in March and that by December next year the base rate will fall by a total of 1.56 percentage points.
Source: čtk