The dollar suffers its first annual loss since 2020 with expectations of a rate cut

The dollar rose in Friday trading, but ended 2023 with its first annual loss since 2020 against the euro and a basket of currencies, thanks to market expectations that the US Federal Reserve will begin cutting interest rates in March at the earliest.

Questions for 2024 will center around when the Federal Reserve will start cutting interest rates, and whether the first interest rate cut will be aimed at avoiding excessive tightening of monetary policy as inflation declines, or because of a slowdown in US economic growth.

Since the US Central Bank launched its course to tighten monetary policy in early 2022, expectations related to the amount of need to raise interest have been a primary driver for the dollar.

But with continued economic data indicating a continued slowdown in US inflation, investors' focus has shifted to when the central bank might start cutting interest rates.

These expectations gained momentum after the easing bias at the central bank's monetary policy meeting in December.

The dollar rose against a basket of currencies 0.10 percent to 101.33, up from the lowest level in five months of 100.61 recorded on Thursday.

However, the dollar index recorded a loss of 2.11 percent during this year and a decline of 4.56 percent during the current quarter, which is the worst performance in a year.

The euro fell 0.20 percent to $1.1039, hovering below the highest level in five months at $1.11395, which it reached yesterday, Thursday. The euro achieved gains of about 3 percent for this year, its first positive year since 2020.

The British pound rose by 0.02 percent to 1.2732 US dollars, and achieved annual gains of about 5.4 percent, which is its best performance since 2017.

The dollar recorded annual gains of 7.56 percent against the Japanese yen, as the Japanese currency is still under pressure from the ultra-loose monetary policy adopted by the Bank of Japan.

The Swiss franc is one of the best performing currencies this year, as the US currency lost 8.99 percent against it, which is the worst decline since 2010.