Upcoming Rate Cuts Fuel Further American Dollar Rate Drop

The American dollar rate has been performing poorly as Thursday gets going. As usual, this profited a range of major currencies over the globe. The euro, pound, and yen all achieved their highest growth against the US dollar in around 5 months. As we have seen in the last few weeks, the reason is likely due to rate cuts.

Forex traders are anticipating the upcoming rate cuts to hit them hard on the dollar. Therefore, there has been excessive speculation on the dollar in the last few weeks, driving the price down as more people sell dollars. Markets are expecting as many as 6 cuts in the upcoming year despite the Fed only announcing 3 for now. Therefore, downward bets are popular all across the board. It seems that such sentiments will keep driving markets for the foreseeable future.

The new dollar index figures show that it has reached its lowest level in 5 months during this time. It is down to 100.76 against a basket of 6 currencies. This would mean that the index has suffered a 2.6% loss by the end of the year. Such a decline contrasts strongly with the previous 2 years, where the dollar has continuous gains.

Now that the Fed has stopped with the rate hikes and has rate cuts in place, things will be slowing down. Treasury yields will lower, and equities go up while the American dollar rate drops. Treasury yields have actually already dropped by 10 bps to their lowest level since July. It seems that the ideal people wanted for the economy is being reached, and we will see a soft landing after all.

The Japanese yen has been the currency that has gained the most during this period, as the dollar lost out by 0.63% against it. The reason is likely that the yen has a high sensitivity to dollar rates and bond yields. Its fortunes closely follow the rise and fall of the dollar as a rule of thumb.