The world’s central banks had a series of meetings that boosted the greenback.
He global dollar rose on Tuesday as the prospect of higher-for-longer U.S. interest rates remained investors’ top concern, leaving other currencies struggling near record lows.
In a week where there is no activity due to the holidays, trading volumes are likely to decrease as the end of the year approaches. The lack of major economic data releases also means that the rate issue is likely to remain the main driver of moves in the forex market.
He dollar indexwhich measures the US currency against six of its major peers, hovered near a two-year high of 108.54, to close trading at 108.10. Last week, the United States Federal Reserve (Fed) surprised markets by projecting a measured pace of rate cuts going forward, pushing up bond yields. treasury bonds and the dollar and cast a shadow over other economies, especially emerging markets.
The data of US inflation Releases on Friday showed there was only a moderate increase last month, easing some concerns about the pace of interest rate cuts next year. Still, the annual increase in core inflation, excluding food and energy, remained stubbornly above the US central bank’s 2% target, Reuters reported.
Investor confidence also improved when the Congress avoided a US government shutdown thanks to the passage of spending legislation early Saturday. “The mood in financial markets is positive this morning after a US shutdown was averted thanks to Congress passing a new budget bill,” analysts at sydbank in a note.
Changing expectations around rate cuts have left the dollar index near Friday’s two-year high of 108.54. Traders expect 38 basis point rate cuts next year, less than the two 25 basis point rate cuts the Fed projected last week. The Fed had projected four cuts by 2025 in September. Market prices have delayed the first easing of 2025 until June, with a cut in March estimated at around 53%.
The fall of the euro
The president of European Central Bank (ECB), Christine Lagardesaid the euro zone was “very close” to meeting the ECB’s medium-term inflation target, according to an interview published in the Financial Times on Monday. In early December, Lagarde said the central bank would cut interest rates further if inflation continued to decline towards its 2% target, as curbing growth was no longer necessary.
The euro was trading at $1.0418 on Monday, down 0.12% after falling as much as 0.23% earlier in the day, and trading near a two-year low from late November. The single currency has fallen 15% against the dollar in the last three months, reflecting divergent expectations about the actions the central bank will take in the future. Markets currently estimate that the ECB will cut rates by 125 basis points next year.
Source: Ambito
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