The US dollar is experiencing a clear wave of losses during today's trading on Wednesday, continuing its decline for the second consecutive day, amidst growing market bets on a US interest rate cut, following statements from Jerome Powell, the Chairman of the Federal Reserve, which reflected a shift in the monetary policy tone towards further easing.
In today’s trading, the dollar continued its decline against a basket of major currencies, affected by falling US bond yields and rising expectations for an interest rate cut before the end of the year, which raised concerns about a potential slowdown in the US economy in the coming months. Here are the main factors that affected the dollar's movement today:
Powell's Statements Weaken Dollar Performance The US dollar faced strong pressures following Powell's statements, which the markets interpreted as a clear signal for a potential interest rate cut in upcoming meetings. Powell noted that the sharp slowdown in the labor market poses an increasing risk to the US economy, emphasizing that the Fed is closely monitoring employment and inflation indicators to determine the appropriate pace for interest rates.
These statements prompted investors to quickly adjust their expectations, with the likelihood of a 25 basis point interest rate cut in the October meeting rising to about 95.7%, according to the FedWatch tool, while the expectations to keep interest rates unchanged fell to just 4.3%, negatively impacting the dollar’s performance.
Falling Bond Yields Increase Pressure Concurrently, pressure on the dollar increased due to declining US bond yields, with the yield on 10-year Treasury bonds falling to around 4.015%, while the yield on 20-year bonds dropped to 4.573%, and the yield on 30-year bonds decreased to 4.611%. These developments increased selling pressure on the dollar and supported the appeal of alternative assets such as gold and the euro.
Index Loses Momentum As a result of these combined factors, the US dollar index fell by 0.16% to 98.87 points, amidst cautious anticipation from investors for any new indicators that may support the dollar's recovery or halt its downward trajectory.
Analysts believe that the continued decline of the dollar largely depends on the tone of upcoming economic data, especially inflation and employment data, which may reshape the contours of the Federal Reserve's monetary policy in the last quarter of the year.
