The dollar index continued to plunge to its lowest in over two months in Asian trading on Tuesday morning local time as investors anticipate the U.S. Federal Reserve to end its rate hike cycle and shift focus to potential rate cuts.
The dollar index has fallen to its lowest level since September 1, reaching 103.29, below its 200-day moving average. This decline extends from the previous week, when the dollar fell nearly two percent, marking its most significant weekly percentage drop since mid-July.
Meanwhile, other currencies gained against the softer dollar. The euro hit its highest since August 15 at $1.0958, as market participants anticipate that the European Central Bank (ECB) will maintain its rate hike cycle. The yen firmed to a six-and-a-half-week high of 148.09 per dollar but dropped to 147.50.
Investors have factored out any further Fed rate hikes, citing recent U.S. Bureau of Labor Statistics data indicating a slowdown in economic growth and inflation pressures.
The October consumer price index (CPI) fell 3.2 percent year-over-year (YoY), while the core CPI dropped to four percent on an annual basis. The October core producer price index (PPI) also dipped to 2.4 percent YoY.
Markets now predict over 50 percent chance of at least a 25-basis-point cut by May next year, according to CME's FedWatch Tool. Futures also suggest around 90 basis points of cuts throughout 2024, up from 77 basis points before the inflation reports.
"The market is convinced, both credit, equities and currencies, that the Fed has finished raising rates, but the Fed is not willing to say so. We all know this, we've seen this before, we've heard it before," said Joseph Trevisani, senior analyst at FXStreet.com, as quoted by Reuters.
"So you're getting a gradual weakening in the dollar, simply because the Fed is doing its best to prop up rates, not necessarily the dollar, but to prop up rates."
Despite the expectations, recent remarks from some Fed officials, including Chairman Jerome Powell, have left the door open for additional hikes if economic data dictates such a move. Investors now await the minutes from the Fed's latest meeting, due for release on Tuesday.
Stock markets
In contrast to the weakening greenback, Wall Street's three major stock indexes surged to multi-month highs on Monday. The Nasdaq Composite closed at its highest since July 31, while the S&P 500 closed at its highest since August 1.
The tech-heavy Nasdaq led the rally as Microsoft shares soared to record highs. The Dow Jones Industrial Average climbed 0.58 percent, or 203.76 points, to 35,151.04. The S&P 500 advanced 0.74 percent, or 33.36 points, to settle at 4,547.38. The Nasdaq Composite posted a gain of 1.13 percent, or 159.05 points, closing at 14,284.53.
Global stocks advanced broadly, with the MSCI World Equity Index (.MIWD00000PUS) climbing 0.71 percent.
Europe's benchmark STOXX index edged up 0.1 percent, with energy stocks in the lead. However, the healthcare sector declined after shares in Bayer plummeted to their lowest level in 14 years.
Japanese stocks surged to unprecedented heights since 1990, propelled by robust earnings and overseas demand that fueled a three-week rally. Although the Nikkei 225 faced profit-taking, it still gained 8.2 percent for the month.
In the meantime, trading activity is expected to remain subdued for most of the week leading up to the U.S. Thanksgiving holiday on Thursday. Black Friday sales will later gauge consumer sentiment and the overall health of the U.S. economy.