With Inflation Rates Easing, The Value Of The Dollar Has Started Declining Across The BoardDecember 16, 2022
Tuesday was a sad day for the US dollar (USD) traders as the currency’s value started to experience a decline. The dollar experienced a major downtrend across the board.
The CPI was lower than Expected
It happened because the inflation rates were lower than the expected figures in the month of November.
The report shows that the consumer price inflation (CPI) of the United States surged but it was lower than the Feds’ expectations.
This meant that the Feds would find it easier to lower the interest rates. This meant that eventually, the value of the dollar would lose its strength and start moving in the lower direction.
With these things in mind, the traders started to back out from their investments in the US dollar. This eventually resulted in pulling the dollar price versus all major currencies.
Feds have lowered the Interest Rates
Right from the beginning of November, there were strong speculations that the Feds will reduce the interest rate hikes starting in December.
The traders were confident that if the Feds do not lower the interest rates in December, they will definitely do it in January 2023.
These speculations were enough to stop the traders from investing money into the dollar. As a result, the value of the dollar started to move lower with no support coming from the investors.
However, the speculations changed in the mid of November as some of the inflation data came in stronger than expected. The traders claimed that the Feds would continue increasing the interest rates with the same rates.
Turns out, the Feds are no longer going to increase the interest rates by 75 bps. Instead, they will be increasing the interest rates by 50 bps.
With the interest rate hikes lowering, the traders are also losing their confidence and the trading price of the dollar has nosedived.
The Feds announced the interest rate hike by 50- bps after holding a two-day meeting, which began on Wednesday and lasted until Thursday.
After the announcement made by the Feds, the value of the dollar started to move lower. The dollar ended up moving down to a six-month low versus the trading price of the euro.
The value of the euro ended up hitting a high of $1.0673 versus the dollar. This is the highest trading price the euro has hit against the dollar since the month of June.
It was in June when the value of the euro surged by 0.9% against the dollar and it went all the way up to $1.0631.
The value of the dollar experienced a downtrend against the trading price of the Japanese yen as well. The report shows that the value of the dollar fell to 134.67, which is a one-week low for the greenback.
The US dollar index has recorded a major upset in the recent trading session against the six major fiat currencies. The DXY has reportedly fallen 0.9% and it is currently at 104.02.
Consumer Prices Surged in November
The data shared by the US Feds for November showed that the US consumer prices experienced a surge but it was modest.
The surge was recorded on an annual basis because used cars and gasoline now cost less. As a result, the inflation recorded is the lowest inflation ever recorded in almost a year.
From December 2021 until November 2022, the CPI recorded a surge to 7.1% in November, the lowest in the particular period. On the other hand, the CPI had climbed to a high of 7.7%.
As per the data, the October CPI surge was 0.3% while the November CPI surge was 0.2%.
Future Expectations by the Investors
According to the investors, there is a very high chance that the Feds may go back on their decision of hiking interest rates by 50 bps. Instead, they may change their decision to 25 bps interest rate hikes.
This would bring the price of the dollar even lower in the upcoming months. As per the traders, the Feds may decrease the interest rate hikes to 25 bps starting in 2023.