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Peter Davis

An writer at FOMOdrive

  • Jul 14, 2023
  • 3 min read

The dollar index fell below 100 points for the first time in 15 months

Many US dollar 100 banknotes

In recent days, the dollar has experienced a sharp decline due to increasing speculation that the Federal Reserve's rate increase period is coming to a close.

On Thursday, the dollar index (DXY) closed the day below 100 points for the first time since April 13, 2022.

On March 1, 2022, the euro rose above $1.12 for the first time.

In the last six days, DXY has experienced a decrease of 3.5%.

It is estimated that there is a 41% chance that the Federal Reserve will begin reducing interest rates in January.

The US dollar has weakened in expectation of the Federal Reserve reducing the speed of its monetary tightening. This is mainly due to the decreasing inflation rate in the US.

The FxPro analyst team has noted that the consumer price index in the US has seen a decrease in its annual growth rate to 3.0% in June, down from 4.0% in the previous month. Additionally, the core inflation index has also slowed to 4.8%, compared to the 5.3% from the month before and the expected 5.0%. This is the ninth consecutive report that the indicator has come in line with or weaker than expected.

Reuters reported on Thursday that data from the US showed a further deceleration in inflation, confirming market sentiment.

In the US, the Producer Price Index (PPI) increased by 0.1% month-on-month in June, with the annual growth rate also being 0.1%. This was the smallest rise in almost three years.

UBS has suggested that the rate hike cycle is nearing its end, as indicated by inflation data. Nevertheless, the Fed will not be quick to declare success, despite the positive news on inflation.

Nordea believes that the July meeting will be the final one in this cycle, due to the inflation data that has increased the confidence that the rate will be raised by 25 basis points. ABN Amro agrees with this assessment.

The City Index has noted that it is yet to be determined if the dollar will drop any lower for the rest of the year. The ultimate destiny of the dollar will be contingent on the news from the Federal Reserve in the coming weeks. It is still uncertain if the Fed will indicate the conclusion of the rate increase cycle in July.

Mary Daly, President of the San Francisco Federal Reserve, stated on Thursday that it was premature to declare a triumph over inflation.

Almost 95% of the market is confident that the Federal Reserve will raise the rate by 25 basis points at the next meeting on July 25-26. The probability of keeping the rate at the current level of 5.50% at the September meeting is estimated at 80.5%, up from 66.7% a week earlier. The probability of keeping the rate at the same level at the November meeting is 70.8%, and at the December meeting is 60.3%.

The likelihood of rate reductions beginning in January 2024 has increased from 18% a week ago to 41.1%.

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