The dollar hit more than two-month lows on Monday, extending last week’s downward trend, as traders reaffirmed their belief that US interest rates have peaked and focused their attention on when the US might begin cutting them. The dollar index fell to 103.53 during Asian trading, its weakest level since Sept. 1, extending its near 2% decline last week, the biggest since July. The euro was trading at its highest level since August, at $1.0937, while the yen strengthened to a five-and-a-half-week high of 148.63 per dollar.
Markets have discounted the risk of further Fed rate hikes, following a series of weaker-than-expected US economic indicators last week, particularly following an inflation reading below estimates. Attention is now focused on how soon the first rate cuts could come, as futures price the possibility that the Fed will begin lowering rates as early as March at 30%, according to CME’s FedWatch tool.
“The weakness of the dollar has to do with the movements in the rates markets, especially after the November Fed meeting and the CPI last week,” said Dane Cekov of Nordea, although he added that there could be weakness in the dollar in the very short term. “From a technical perspective, the dollar now appears oversold against the euro, normally you will see some type of consolidation,” he added.
Sterling rose 0.2% to $1.2484, flirting with a two-month high.