After briefly languishing below the 101 mark, the U.S Dollar Index (DXY) is trending higher at 101.41 today. Hopes of rate cuts have driven DXY to its lowest levels since the beginning of October.
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Amid weakening bond yields, the Canadian dollar continues to display strength against the greenback. At the same time, emerging currencies are seeing strength as traders eye a soft landing next year. Additionally, the euro and pound are also gradually strengthening.
While traders are pricing in a 150 basis point decline in rates next year, this year’s sharp sell-off in the U.S. dollar could reverse if the Fed holds its ground next year. Moreover, the timing of the rate cuts and any surprise comments from Fed officials could lead to a rebound in the dollar over the coming months. In contrast to the Fed’s position, the ECB is largely expected to continue with elevated rates next year.
Meanwhile, the MSCI Emerging Market Currency index is hovering at its highest level in nearly 20 months. Even as the DXY hovers at its lowest levels in nearly five months, more pain may be ahead over the coming days. Any rebound could meet a stiff resistance at the 101.7 mark and another break below 100.8 could lead to a sell-off.
Source: TradingView
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