He dollar registers its biggest weekly drop in five months this week, as the prospects for cuts in interest rates on the part of the Federal Reserve in the face of the hard line of European central banks fuel the advances of the euro and the pound sterling.
The Bank of Japan is the last of the major central banks to meet this month, and the question on investors’ minds is whether it will signal next week its intention to abandon its policy of keeping rates at historic lows.
In an action-packed week for central banks, traders are finding more clarity on when rate cuts are likely after Fed Chairman Jerome Powellsaid on Wednesday that monetary policy tightening is likely to be over, with a debate on cuts “in sight”.
The divergence between the United States and other central banks leads the dollar index towards a collapse of close to 2% this week – its biggest weekly loss since mid-July – and around its lowest level in four months. The index operates stable at 101.94 units.
Dollar vs. other currencies
“There was an element of surprise – how far the Fed went to give the market what it wanted. Christmas came early,” says Fiona Cincotta of City Index. “The dollar may continue to weaken, but I think the concern is that if the Fed lowers rates too quickly, inflation could return to its level. “It is a scenario that we have seen before and that will weigh on the minds of investors, although not immediately, since we are still in the euphoria of the decision.”
On the eve, the European Central Bank and the Bank of England take a different path from that of the Fed, rebutting bets on imminent rate cuts and reiterating its attention to the fight against inflation, which boosts the euro and the pound.
The pound fell 0.2% to $1.2745, after hitting 1.1% on Thursday, to a four-month high of $1.2793, following the BoE’s hawkish tone.
For its part, the yen appreciates 0.1% against its US pair, to 141.70 units, after advancing 0.7% on Thursday, to 140.95, its highest level in four and a half months. The Japanese currency accumulates a rise of 2% and is chaining its fifth consecutive week of gains against the greenback, the longest since mid-2020.
Source: Ambito
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