After Christmas, the index of dollars saw a small decline; it was hovering around 101.59, as investors sought important signals about possible reductions in interest rates by the Federal Reserve. This is because inflation is advancing towards the central bank’s 2% annually goal. Yet, movements in the currency market were not as dramatic, and there were no public holidays observed across a variety of countries, including those in the UK, Australia, New Zealand and Hong Kong.
The greenback could show its lowest performance since the year 2020 compared to an array of currencies. Many analysts expect a major decline within the U.S. economy in 2024 which is triggering expectations for Fed intervention to stop an increase in the gap between Fed funds rate and the actual inflation. There are concerns that if inflation increases faster than the benchmark rate of the Fed and it is a mistake to tighten financial conditions, increasing the chance of a very hard economic downturn.
Recently, data showed a decrease in U.S. prices in November. This was the first decrease in more than three and three-quarters of a year. It has increased the annual rate of inflation down to 3.3%, creating the expectation of an interest cut for March.
Wells Fargo analysts noted the improvement in inflation by the Fed and acknowledged that even though it was true that inflation in the core started off nearer to an annual rate of 5.5% however, more work needed to achieve that it continues to rise towards the goal of 2%. The euro recorded a small gain up to $1.1024 which puts it on the path to a 2.90 percentage gain during the coming year.
In contrast, the dollar increased by 0.02 percent against the Japanese yen, averaging 142.42 The dollar is currently in the process of achieving an 8.63 percent gain by 2023. The yen’s price, close to its recent 5-month high, suggests that it is possible that the Bank of Japan might signal the ending of its ultra-easy policy.
BOJ governor Kazuo Ueda indicated a rising probability of reaching the inflation goal set by the central bank and suggested that there could be a change in policy if the chances of maintaining the target of 2% increase sufficient.
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