The US Dollar Is Poised For a Steep Decline Over The Next Week

(CTN News) – In response to concerns over the weakening global economy, the US Dollar (USD) was headed for one of its steepest weekly declines this year, while the yen strengthened sharply to trade below 150 per dollar.

Market expectations for the Federal Reserve to cut rates were reset by cooler-than-expected inflation data on Tuesday and Wednesday. Having dropped 1.6% in the past five days, the greenback is set to have its biggest weekly drop since July.

Inflation, the main market driver, temporarily supported the dollar after October single-family homebuilding data showed a slight increase.

Bipan Rai, North America head of FX strategy at CIBC Capital Markets in Toronto, said that recent data indicates progress is being made on the inflation front. “I think the dollar’s initial momentum is towards a decline.”

There was a decrease of 0.23% in the dollar index, which measures the greenback against six other major currencies.

Thierry Wizman, global FX and interest rate strategist at Macquarie in New York, explained that corporations lowering growth expectations would be a key signal of a fourth quarter slowdown.

According to Wizman, the company is not seeing the kind of pricing power it saw in Q3 and customers aren’t as enthusiastic about the product as they were.

In October, euro zone inflation slowed sharply year-over-year, according to Eurostat data.

For the first time in nearly two weeks, the yen broke the 150 mark, strengthening 0.75% to 149.61 versus the dollar.

The dollar has lost about 1.4% to the Japanese currency since Monday.

As a result of “contingent growth concerns” worldwide, said Lee Hardman, currency analyst at MUFG, the yen has strengthened, adding that the fall in energy prices has less of an impact on Japanese trade terms.

In Britain, weaker-than-expected retail sales figures added to a slew of negative readings this week, but sterling edged up to $1.2418, up 0.10%.

As global economic prospects deteriorate, central banks may be winning the war against soaring prices, according to sluggish data.

A 93 basis point cut in the Fed’s overnight lending rate by December 2024 is priced by futures markets, contributing to the dollar’s weakness.

A 100 bps rate cut in the eurozone next year has also been priced nearly fully in the money markets. Robert Holzmann and Joachim Nagel, two policymakers at the European Central Bank (ECB), said on Friday that the bloc should be prepared to raise interest rates again if necessary.

The ECB president said earlier in the day that the EU needs a capital markets union, as neither heavily indebted governments nor banks can provide the funds needed.

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