US Dollar hits four-month low as Fed signals 2024 rate cuts

On Thursday, the US dollar reached a new four-month low following the Federal Reserve’s announcement that their interest-rate hike cycle has concluded and that reduced borrowing costs can be expected in 2024.

During a bustling day for policy announcements in Europe, the Norwegian currency gained strength following a rate increase, while the Swiss franc remained relatively stable as the Swiss National Bank chose to maintain rates. Later in the day, both the Bank of England and European Central Bank will also reveal their respective policy decisions.

During the FOMC meeting on Wednesday, Fed Chair Jerome Powell announced that the era of tightening monetary policy has likely ended. He also mentioned that there are talks about reducing borrowing costs in the near future. Nearly all policymakers agreed that interest rates would decrease by 2024.

According to RBC strategist Blake Gwinn, all forms of Fed communication, including the statement, the dots, and Powell’s press conference, were clearly aligned with a dovish stance.

The change was most evident when Powell acknowledged the committee’s conversation about the suitable timing of cuts during the meeting.

The U.S. dollar index, which tracks the value of the dollar against a variety of currencies, dropped to 102.42, its lowest point since mid-August. Currently, it is experiencing a 0.3% decline and stands at 102.57.

According to the CME FedWatch tool, markets are currently giving over an 85% likelihood of a rate cut in March, which is a significant increase from the 40% prediction just one day prior. Traders are also factoring in a 20% chance of the Fed lowering rates in the upcoming month.

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Europe’s busy day of central bank announcements began with the SNB announcing a steady rate of 1.75%, which was in line with expectations. Following the announcement, the franc held its weaker position against the euro and strengthened slightly against the softer dollar. This move was accompanied by the central bank’s recognition of a slight decrease in inflationary pressure over the past quarter.

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