The dollar is broadly lower today, leading the dollar index to a daily 0.38% decline and its 3rd consecutive daily loss, losing -0.97% over that period. At 100.73, the dollar is approaching the year’s low at 100.51 (an 8-month record).
Higher bond prices (lower yields) are the catalyst for the dollar’s drop as traders jockey positions ahead of Wednesday’s FOMC rate policy decision. Over the last five days market sentiment has shifted in favor of a 50bps cut, going from a 17.5% implied probability on Sept 11th to 67.5% today.
Dollar declines since the 9/11 peak are most pronounced against emerging markets: USDMXN -2.95%; USDBRL -2.67%.
Anticipation of lower U.S. rates has also weakened the dollar against the Japanese yen, driving the USDJPY pair to a 14-month low at 139.56.
The FOMC begins its 2-day policy meeting tomorrow and will announce its rate decision at 2pm ET on Wednesday. This is the most anticipated rate announcement since the Fed started raising rates in March 2022. The combination of changing the direction of rate policy and uncertainty over the amount of the cut will likely lead to volatile trading conditions.
Gold is higher for the third consecutive day and its third consecutive daily historical high reaching $2,589.59oz.
