Dollar At 7-Month Low Against Euro Over Slower Rate Hike Expectations

On Monday, the US dollar declined against the euro to hit a 7-month low, as traders were betting that the recent economic data would prompt Federal Reserve policymakers to slow down their pace of interest rate hikes.

Meanwhile, China’s border reopening appeared to benefit riskier currencies, as they got a boost.

Dollar lower

By 1950 GMT, the euro had climbed to $1.0747, which was a 0.96% rise against the US dollar, as it added to the 1.17% increase it had recorded on Friday.

This saw the currency reach its highest level against the dollar since June 9th. There was also a 0.87% increase in the Sterling against the US dollar, as it climbed to $1.21975.

The British pound also built on its Friday rally of 1.5%, while a 0.82% rise in the Swiss franc saw it reach $0.92, which is the strongest it has been since last year in March.

As for the greenback, the moves continued to trend lower, as the currency posted its biggest loss in a quarter in 12 years in the last three months of 2022.

This was primarily due to investors’ perception that interest rates would not be hiked by the US Fed beyond 5%, as growth and inflation are cooling.

Rate hikes

Market analysts said that people were tracking Fed funds futures and it appears that the US central bank would deliver a rate hike in February and there could be a rate cut by the year’s end.

Therefore, this drove a lot of people to bet against the US dollar. According to Fed funds futures, most investors believe that the Fed would increase the interest rate by 25 basis points in February.

Analysts said that investors are expecting the dollar to decline significantly by the end of the year, so they are just trying to get ahead of it.

Last month, the Fed hiked the interest rate by 50 basis points, after delivering 4 consecutive hikes of 75 basis points each last year.

But, it did add that it was likely to keep the interest rate high for some time in order to tame inflation.

The data

On Friday, two different reports showed that the economy is adding jobs and growing, but overall activity is moving into recession territory.

This has pushed investors to sell the greenback against the number of currencies. The monthly employment report on Friday showed that the number of workers had increased more than expected.

It also showed that wage growth had slowed, all of which was excellent news for the Federal Reserve. The Institute for Supply Management also reported that the service sector had seen a contraction in activity.

This was the first time it had happened in two and a half years. The dollar index fell to a low of 7 months at 103.033, after declining 0.81%.

On Friday, the index recorded a decline of 1.15%, as investors had moved towards riskier currencies. The CPI data is due on Thursday, which means price pressures will be the focus for this week.