The U.S Dollar Index (DXY) is trending nearly 0.51% lower in the morning session today. The index has now corrected by nearly 4.9% since its October highs.
Falling 10-year treasury yields continue to signal the market’s rising anticipation of a dovish stance from the U.S. Federal Reserve next year. While the latest inflation print in the UK could put some pressure on the Sterling, the latest comments from multiple Fed officials indicate a pushback against the market’s anticipated pace of rate cuts next year.
Meanwhile, Japan’s decision to continue its loose monetary policy could lead to the dollar’s pullback against the yen. Heading into 2024, a diminished role for the dollar on the global stage could lead to a rise in commodity prices. In this scenario, one should keep an eye on the BRICS currencies as geopolitical tensions rise around the world.
While the strength in the U.S. economy could lend it some strength, the dollar remains susceptible to the Fed’s pivot next year. If inflation does not cool off as expected, the Fed could spoil the party for traders factoring in an over 140 basis point rate cuts next year.
The DXY is now hovering well below its 45-day and 200-day moving averages. A breach below the 101.3 level could lead to another sharp correction in the index.
Source: TradingView
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