US dollar rises as stocks fall sharply

On Wednesday, the dollar experienced an increase in value while stock indices saw a significant decrease.

The S&P 500 experienced its largest drop in nearly two months.

The pound has been affected by a considerable decrease in inflation in the UK.

On Wednesday, the dollar index rose as a late-session selloff on Wall Street increased the greenback's appeal as a safe-haven asset. Additionally, data showing a sharp decline in UK inflation sent the British pound tumbling, according to Reuters.

On Wednesday, U.S. stocks ended the day lower following a sudden selloff that put a stop to the rally that had been driven by the anticipation of interest rate cuts and a more accommodative stance from the Federal Reserve.

The DXY index dropped by approximately 1.5% during the week that ended on Tuesday, following the Federal Reserve's meeting the previous week. This prompted traders to anticipate multiple rate cuts in 2024, beginning as early as March.

Officials from the US Federal Reserve have dismissed the notion of a swift rate reduction in the coming year.

Wednesday's data revealed that U.S. consumer confidence increased more than anticipated in December, with a hopeful outlook on the job market that could bolster the economy in the beginning of 2021.

There is a possibility that the U.S. dollar will remain weak until 2024, following the Federal Reserve's dovish stance in December. However, investors believe that a stronger U.S. economy could limit the dollar's decline.

Friday's US inflation data is being eagerly anticipated by markets, as it will be used to inform the Federal Reserve's future decisions.

On Wednesday, the pound dropped significantly following the announcement of data on price increases. UK inflation dropped to its lowest point in two years in November, leading investors to anticipate a Bank of England rate cut by May 2024 and estimate a nearly 50% chance of a cut by March.

The FxPro analyst team notes that last week the Bank of England displayed a hawkish attitude, which was contrary to the dovish stance of the Fed. It appears that the UK Central Bank is not in a rush to alter its rhetoric because of the speed of wage growth.

In an interview published on Wednesday, Joachim Nagel, a spokesman for the European Central Bank (ECB), warned traders who are betting on a decrease in euro zone interest rates to be cautious. He stated that interest rates should remain high.