The Dollar Index is -0.33% today, -1.94% during December, and -4.85% since October’s close. The dollar’s weakness has unfolded in relative orderly fashion with dollar bears pouncing on minor dollar gains as an opportunity to go short at more favorable levels. The turning point for the dollar was October’s surprise Nonfarm Payrolls figures (released on November 3rd) that were below market estimates. The payroll disappointment was followed shortly by an unexpected drop in CPI. Additional economic data points since then have signaled a clear picture of a receding U.S. economy, paving the way for the Fed’s dovish ‘pivot’ on rates at the FOMC’s December 13th rate policy announcement.
Traders are now pricing in an 85% probability of a quarter point cut at the FOMC’s March 2024 meeting, and >100% probability of cuts at the May and June meetings. The implied rate at the end of 2024 now stands at 3.73%, suggesting 1.60% in total cuts during all of next year. That’s a phenomenal shift in sentiment from only two months ago.
The USD is lower today vs. all G10 currencies, a continuation of the weekly, monthly, and quarterly trends.
U.S. Treasury yields are lower today, with the 10-year yield now at 3.8745%. Initial support is seen at 3.80%, but an eventual drop to 3.50% appears to be the technical target.
