The US Dollar (USD) index reached its lowest point in over two months on Monday, continuing a decline from the previous week. This comes as investors believe that the U.S. Federal Reserve has completed its interest rate hike cycle and are now assessing when the central bank may start to cut rates.
The US Dollar index dropped to 103.46, its weakest level since Sept. 1, after a nearly 2% decrease last week, marking the largest weekly percentage drop since mid-July.
Recent data has indicated a slowdown in the economy and inflation pressures, leading markets to rule out any further Fed rate hikes. However, fears of a sharp recession are not yet prevalent.
The economic calendar is relatively light due to the shortened work week in the U.S. with the Thanksgiving Day holiday on Thursday. Markets are now speculating on when the Fed may begin to cut rates, with a greater than 50% chance of a cut of at least 25 basis points by May, according to CME’s FedWatch Tool.
The euro has been strengthening against the softer greenback, reaching its highest level since Aug. 30 at $1.0945, while the yen firmed to a 6-1/2-week high of 148.09 per dollar.
In addition, Moody’s unexpectedly upgraded the outlook on Italy’s ‘Baa3’ sovereign rating to stable from negative and upgraded Portugal’s rating by two notches to ‘A3’.
Overall, the markets are closely watching for any signals on the central bank’s policy path, with scheduled speeches from Federal Reserve Bank of Richmond President Thomas Barkin and the release of minutes from the Fed’s latest meeting.
This article was originally published on FXStreet.com.