He global dollar fell on Friday, taking a breather after five straight days of gains, as risk appetite increased following another round of stimulus measures from China that boosted global actions led by those of the Asian giant.
He dollar index —which measures the performance of the greenback against a basket of six other internationally relevant currencies— fell 0.3% to 103.49, its biggest daily drop since the end of September. However, it notched its third weekly gain, up 0.6% this week. Additionally, it is up around 2.7% so far this month, its biggest monthly gain since February 2023.
The measures in China affected the dollar
Investors welcomed the Chinese government’s launch of two financing plans to help boost its stock market. As a result, Chinese stocks rose, also boosting other stock markets, including the S&P 500 and the Nasdaq.
This also raised the chinese yuan and boosted commodity currencies such as the Australian and Canadian dollars at the expense of the safe haven US dollar.
“Today’s dollar decline was more due to China. Last night, China launched measures to support the stock market,” he said Erik Bregar director of currency and precious metals risk management at Silver Gold Bull in Toronto.
“That boosted Chinese stocks and risk sentiment in general and put pressure on the dollar/yuan, which in turn helped boost the euro/dollar. That started the dollar’s pullback,” he added.
Expectations about the Fed
The biggest support for the dollar in recent weeks has been a change in monetary policy expectations from the Federal Reserve (Fed) towards a more moderate easing phase, after a series of generally strong US economic data, as well as expectations of a victory of donald trump in the US elections.
The Fed cut benchmark rates by 50 basis points (bps) in September, leading the futures market rates at that time to incorporate another huge movement this year.
“Speculation that the Fed could follow September’s 50 basis point rate cut with another move of similar size has been dashed by a series of data pointing to a resilient US economy,” he wrote. Jane Foley, director of foreign exchange strategy at Rabobank in London.
“Instead, rumors have arisen that the FOMC may be willing to cut rates just one more time before the end of the year.”
U.S. rate futures have priced in a 95% chance that the Fed will cut rates by 25 basis points next month, and a 5% chance that it will pause or hold the rate. federal funds in the target range of 4.75%-5%, according to estimates by LSEG. They had previously planned a new cut of 50 basis points at one of these meetings.
The futures market also expects a cut of around 45 basis points by 2024 and additional reductions of 104 basis points next year.
Source: Ambito
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