The U.S. dollar recently experienced a significant decline, hitting a more than three-month low against major currencies. This drop was largely influenced by growing speculations that the Federal Reserve may start cutting interest rates early in the next year. These expectations were sparked by comments from Fed Governor Christopher Waller, who hinted at a possible rate cut in the future, indicating a shift towards a more dovish stance.
Rising Currencies: Kiwi and Aussie
In contrast, the New Zealand dollar, also known as the kiwi, soared after the Reserve Bank of New Zealand (RBNZ) maintained its interest rates but signaled potential rate hikes in 2024 and 2025, indicating a hawkish outlook. This resulted in the kiwi jumping more than 1% to hit a four-month peak. Similarly, the Australian dollar reached a four-month high, despite domestic inflation data showing a greater-than-expected decrease.
Euro and Sterling Reach Highs
The U.S. dollar's decline also boosted other currencies, with the euro and sterling reaching three-month highs. The dollar's tumble to an over three-month low against a basket of currencies has been largely influenced by expectations that the U.S. Federal Reserve could start easing monetary policy early next year.
Market projections now reflect a 40 percent chance of the Fed reducing monetary policy by next March. Financial analysts and economists have become less optimistic about the U.S. dollar's short-term prospects. The anticipated earlier easing by the Fed could reduce its near-term gains, marking a significant shift in the financial landscape.