The US dollar fell to its lowest level in four months on Thursday, as traders digested the clearest signal yet that the Federal Reserve's hawkish campaign is over.
The Bloomberg Dollar Spot Index fell 0.3% to its lowest level since August, extending yesterday's losses on Wednesday, after Federal Reserve officials expected a sharper pace of interest rate cuts than they saw in September. The US central bank kept interest rates steady for the third time in a row.
While Fed Chairman Jerome Powell indicated that officials remain willing to raise interest rates again if price pressures return, they largely signaled the end of the tightening cycle. Powell said policymakers are now shifting their focus to when to start cutting interest rates as inflation continues to fall toward their 2% target.
“The Fed’s decisive pivot to lower interest rates has comprehensively undermined expectations for a near-term US dollar rally,” Richard Franulovich, head of FX strategy at Westpac Banking Corp in Sydney, wrote in a note to clients. He added: While the door is now wide open to the long-awaited major shift in the dollar, we still believe that it will take some time for development to occur.
All the so-called G10 currencies advanced against the dollar on Thursday, with the Australian dollar rising more than 0.5%. Asian currencies rose broadly, with the Korean won and Thai baht rising nearly 2%.
The dollar is on track for its second consecutive monthly loss, after recording its biggest monthly decline in a year in November - a decline of about 3%. The currency's path will depend on the speed of interest rate cuts by other major central banks, as the battle against inflation is balanced against economic fragility.
