Dollar Hits Four-Month Low as Fed Signals End of Interest Rate Hikes
The dollar has reached a fresh four-month low following the Federal Reserve’s announcement that its interest-rate hike cycle has come to an end and lower borrowing costs are expected in 2024. This article discusses the implications of the Fed’s decision, as well as the reactions of other central banks and currency markets.
Fed Indicates the End of Monetary Tightening
At the Federal Open Market Committee (FOMC) meeting, Fed Chair Jerome Powell stated that the historic tightening of monetary policy is likely over, with discussions of cuts in borrowing costs on the horizon. The majority of policymakers projected a decline in borrowing costs by 2024.
Dollar Index Drops to Lowest Level Since August
The U.S. dollar index, which measures the greenback against a basket of currencies, fell to its lowest level since mid-August, reaching 102.42. This decline represents a 0.3 percent drop to 102.57.
Central Bank Actions and Market Reactions
Norwegian Crown Strengthens After Rate Hike
The Norwegian crown strengthened against other currencies after the Norges Bank unexpectedly raised rates by 25 basis points to 4.5 percent. The central bank also indicated that it would likely maintain this level for some time.
Swiss Franc Remains Stable After SNB Holds Rates
The Swiss franc experienced little change after the Swiss National Bank (SNB) decided to keep rates steady at 1.75 percent. The franc remained weaker against the euro but slightly stronger against the softer dollar.
Bank of England and European Central Bank Policy Announcements
Both the Bank of England (BoE) and the European Central Bank (ECB) are expected to maintain interest rates unchanged. However, market attention is focused on any communication regarding potential policy easing in 2024.
Market Expectations and Traders’ Reactions
Market expectations now indicate a more than 85 percent chance of a rate cut in March, compared to 40 percent the previous day. Traders are also pricing in a one-in-five chance of a rate cut next month.
Yen Strengthens Against the Dollar
The yen continued to strengthen against the dollar, reaching its highest level since July 31 at 140.95 yen per dollar. This movement surprised traders who were bearish on the yen and bullish on the dollar, leading to position unwinding.
Australian Dollar and New Zealand Dollar Perform Well
The Australian dollar reached a four-month high at $0.6728 after strong domestic net employment data. Similarly, the New Zealand dollar rose over 1 percent against the greenback, despite an unexpected contraction in the country’s economy.
Cryptocurrency Update
Bitcoin experienced a slight decline of 0.3 percent, reaching $42,772.
Conclusion:
The Federal Reserve’s indication of the end of its interest-rate hike cycle has led to a drop in the dollar’s value. Central banks around the world have responded differently, with the Norwegian crown strengthening and the Swiss franc remaining stable. The Bank of England and European Central Bank are expected to maintain interest rates unchanged, while market attention remains on potential policy easing in 2024. Currency markets have seen fluctuations, with the yen strengthening and the Australian and New Zealand dollars performing well. Bitcoin has experienced a minor decline in value.
