Dollar Tumbled Last Week After An Eight-week Rally
December 02 2024 - 3:43AM
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After a gaining streak that extended for eight weeks, the U.S.
Dollar slipped against major currencies during the week ended
November 29. The U.S. Dollar plummeted against the euro, the
British pound, the Australian dollar, the Japanese yen, the Swiss
franc as well as the Swedish krona.
It however gained against the Canadian dollar amidst recent
threats of higher trade tariffs by U.S. on Canada. The Dollar Index
also recorded heavy losses amidst renewed Fed rate cut
expectations, easing geopolitical tensions in the Middle East and a
reassessment of the trade and fiscal policy under the new
regime.
The Dollar Index, a measure of the Dollar's strength against a
basket of 6 currencies, dropped 1.7 percent during the week ended
November 29. From the level of 107.55 recorded at close on November
22, the index declined to close at 105.74 a week later. The Index
recorded the week's high of 107.50 on Tuesday and the week's low of
105.61 on Friday.
At the onset of the new week, the dollar retreated from two-year
highs after U.S. President-elect Donald Trump nominated hedge fund
manager Scott Bessent for the post of Treasury Secretary. The news
appeared to suggest milder shifts from existing policy, reassuring
bond markets, dragging down bond yields and weakening the
greenback.
Minutes of the FOMC released on Tuesday showed participants
being concerned about easing policy too quickly or too slowly. They
noted that monetary policy would need to balance the risks of
easing policy too quickly, thereby possibly hindering further
progress on inflation with the risks of easing policy too slowly,
thereby unduly weakening economic activity and employment. The
participants also deemed it appropriate to reduce policy restraint
gradually given the uncertainties concerning the level of the
neutral rate of interest.
However, renewed tariff threats helped the Dollar rebound to the
week's high on Tuesday. U.S. President-elect Donald Trump warned on
Tuesday about imposing additional trade tariffs on China, Mexico,
and Canada.
Data released by the U.S. Bureau of Economic Analysis on
Wednesday morning showed the Annual PCE Price index increasing as
expected to 2.3 percent from 2.1 percent in the previous month. The
core component thereof also rose as expected to 2.8 percent from
2.7 percent in the previous month. The month-on-month PCE price
index was steady at 0.2 percent and its core constituent was steady
at 0.3 percent, both matching expectations.
With no negative surprises in the PCE-based inflation readings
released on Wednesday, rate cut expectations got a boost, dragging
down the dollar. According to the CME FedWatch tool that tracks the
expectations of interest rate traders, the likelihood of a
quarter-point rate cut in December increased to 66 percent by
Friday from 52 percent on Monday.
The dollar's weakness and hawkish comments from ECB officials
lifted the EUR/USD pair to a high of 1.0597 on Friday from the
week's low of 1.0424 recorded on Tuesday. Despite a weak economic
outlook for the region, the pair added 1.52 percent during the
week, closing at 1.0575 on Friday, versus 1.0417 a week earlier.
Data released during the week had shown the region's inflation
rising in November in line with expectations but further above the
ECB's target.
The GBP/USD pair jumped 1.64 percent during the week ended
November 29, lifting the sterling to $1.2737, from $1.2531 a week
earlier. The pair climbed from the low of 1.2503 touched on Tuesday
to the high of 1.2749 recorded on Friday amidst renewed inflation
fears and not-so-dovish hints from Bank of England officials.
The Australian Dollar added 0.14 percent against the U.S. Dollar
during the week ended November 29. The pair which touched the
week's high of 0.6549 on Monday dropped to the week's low of 0.6432
on Tuesday. The pair eventually closed at 0.6510 versus 0.6501 a
week earlier. The Aussie's moves came amidst the monthly CPI
indicator remaining steady at 2.1 percent in October.
The USD/JPY pair slipped 3.2 percent during the past week amidst
an uptick in Tokyo CPI and comments from BoJ officials that renewed
bets of the next rate hike by the Bank of Japan in December. The
pair dropped to 149.75, from 154.74 a week earlier. The weekly
trading range was a bit wider, between a high of 154.72 recorded on
Monday and 149.46 recorded on Friday. Trade tensions between U.S.
and other nations too supported the safe haven yen's climb to a
six-week high.
Despite the massive tumble during the past week, the Dollar has
rebounded on Monday, lifting the six-currency Dollar Index 0.59
percent higher to 106.36. On the U.S. economic data horizon are the
ISM Manufacturing PMI on Monday, JOLTs jobs data on Tuesday, ISM
Services PMI and Fed Chair Jerome Powell's speech on Wednesday, and
the monthly non-farm payrolls data on Friday.
The EUR/USD pair has decreased to 1.0504 amidst concerns about
the political situation in France. The GBP/USD pair dropped to
1.2676. The AUD/USD pair slipped to 0.6472. The USD/JPY pair has
however increased to 150.31.
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