US dollar falls at record pace in a year

November may end with the dollar index having its worst results in the past year.

Since the beginning of the month, DXY has experienced its most significant decrease since November of last year, with a decline of over 3%.

Investors are selling off dollars in anticipation of alterations in US Federal Reserve policy.

The dollar's weakening has a beneficial impact on emerging markets.

In contrast, Deutsche Bank cautions that the USD is unlikely to weaken in the upcoming months.

Market participants are anticipating the US Federal Reserve's move to cut rates, causing investors to sell dollars at the fastest rate in a year. According to the Financial Times, cited by RBC, these investors are betting that the American regulator has finished its aggressive campaign to raise interest rates and will lower them multiple times in the upcoming year.

State Street bank calculated that in November, asset managers' sales could make up 1.6% of their dollar positions, which is the largest monthly outflow in a year since November 2022.

Over the past 20 days, clients of BNY Mellon have been selling dollars at a rapid rate, instead opting to buy the Japanese yen, Canadian dollar, and some Latin American currencies. This has been the fastest pace of dollar selling this year.

After weak US employment data was released on November 3, sales began and continued after data showed rising prices. Surprisingly, US inflation dropped more than anticipated in October to 3.2%, which decreased the likelihood of additional Federal Reserve rate hikes.

State Street reports that in the past two decades, there have been only six flash sell-offs of dollar assets. The most recent one happened in November of the previous year.

Experts believe that the recent sales of assets by asset managers could be the beginning of a sustained pattern of investors decreasing their investments in US assets overall.

Lombard Odier Investment Managers have stated that the weakening of the dollar has a beneficial impact on emerging markets. This will make it simpler for countries to settle their dollar loans and could potentially draw investors back into the assets of developing economies.

Deutsche Bank is confident that the US dollar will remain strong in mid-2024. They anticipate that the exchange rates of the Euro and the Pound against the US dollar will be lower than they are now. The Federal Reserve may postpone the beginning of its rate cut cycle, and geopolitical risks could further increase the demand for the US dollar as a safe haven.