During today's Asian trading, the US dollar fell moderately against major currencies, continuing yesterday's decline and updating the 5-month low. With the year coming to a close, thin liquidity and limited moves are expected until the New Year.
The US Dollar Currency Index (DXY), which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona) fell by 0.26% to 100.73 (the lowest level since July 27). Expectations of an aggressive easing of the Fed's monetary policy in 2024 continue to put pressure on the US dollar. According to the CME FedWatch Tool, markets see a 72.8% probability of a 25 basis point rate cut at the Fed meeting in March 2024 and a 99.5% probability of a rate cut in May 2024, with over 150 basis points of cuts priced in for next year.
While the Fed took an unexpectedly dovish stance at its December meeting, other major central banks, including the European Central Bank, have again indicated the need to keep rates high for a longer time. However, markets are still pricing in a 165 basis point ECB rate cut next year.
The euro rose 0.15% against the US dollar, reaching a new five-month high. Since the beginning of 2023, the euro has grown by about 3.7%, which is the largest increase since 2020.
The pound rose 0.2% against the US dollar, reaching its highest level since August 10. The pound is headed for a 6% gain in the year, its strongest performance since 2017. The pound is supported by expectations that the Bank of England will not cut rates as aggressively as the Fed and the ECB, given the high inflation rate in the UK.