(CTN News) – On Friday, the dollar dropped broadly for a second consecutive day as investors favoured riskier currencies in response to indications that U.S. inflation is slowing, strengthening the argument for the Federal Reserve to scale down its significant interest rate increases.
The move started after data released on Thursday revealed that U.S. consumer inflation increased 7.7% year over year in October, below expectations for 8% and the smallest pace since January.
The dollar fell by approximately 3.8% over two sessions as measured against a basket of currencies, on track to suffer its worst two-day percentage decline since March 2009.
Dollar bulls had packed positions due to the U.S. currency’s lengthy climb over the previous two years, according to analysts, and many of them were seeking an immediate exit after Thursday’s report.
Marc Chandler, a chief market strategist at Bannockburn Global Forex in New York, stated: “It’s not only short-term trend-followers, momentum players needing to get out of positions. Some long-term structural long-dollar holdings have to be unwound.
The euro increased 1.46% in value relative to the U.S. dollar to $1.036, while the dollar fell 1.7% versus the Japanese yen to trade at 138.55 yen.
According to Jim Cielinski, global head of fixed income at Janus Henderson Investors, “the dollar is one of those markets that is severe in its overvaluation — there is a significant likelihood we have seen the top.” Cielinski made his remarks at the Reuters Global Markets Forum on Friday.
However, several analysts cautioned that dollar bears are still susceptible to a potential short-term recovery.
Yes, more individuals now believe the dollar has peaked, but the shift has been so abrupt that Bannockburn’s Chandler advised against following it.
The poll results released on Friday revealed a decline in U.S. consumer confidence in November, driven by ongoing concerns about inflation and increasing borrowing rates.
Australian and New Zealand currencies, which are more risk-averse, increased versus the dollar by 1.4% and 1.6%, respectively.
Chinese health officials’ relaxation of parts of the nation’s severe COVID-19 requirements, such as cutting the length of quarantine periods for those in close contact with patients and foreign travellers, helped investors’ appetite for risk.
Sterling, on the other hand, increased 1.22% to $1.1853 versus the dollar as UK statistics revealed that, although still entering what is likely to be a protracted recession, the economy did not drop as much as anticipated in the three months to September.
After Swiss National Bank Chairman Thomas Jordan said on Friday that the bank was willing to take “all steps necessary” to bring inflation back to its 0-2% goal range, the dollar fell 2.4% versus the Swiss franc to 0.94025 francs.
After the collapse of the exchange FTX, the turbulence in the cryptocurrency industry continued to put pressure on currencies. The native token of FTX, FTT, was the last trading down 26.7% at $2.731, bringing its monthly losses to over 90%.
To reach $16,747, bitcoin lost 4.6%.
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