As traders watch PCE data, the dollar remains near a three-month low

28 Nov 2023 , 09:38 AM

After falling overnight on weaker-than-expected new home sales data, the U.S. dollar weakened versus other currencies on Tuesday, reaching a three-month low as speculators cashed in on expectations that the Federal Reserve may begin reducing interest rates in the first half of 2024.

According to data, U.S. new home sales decreased 5.6% to a seasonally adjusted annual rate of 679,000 units in October, falling short of the 723,000 units that experts surveyed by Reuters had predicted and falling Treasury yields.

At 103.11, the dollar index—which compares the value of the US dollar to a basket of other currencies—was at its lowest point since August 31. The dollar was expected to see its worst performance in a year in November, falling more than 3%.

The market’s belief that the Fed’s cycle of rate increases has finally ended has also caused the value of the dollar to decline. According to the CME FedWatch tool, U.S. rate futures indicated a roughly 25% likelihood that the Fed might start reducing rates as early as March and increase to almost 45% by May.

The Fed’s favoured inflation indicator, the U.S. core personal consumption expenditures (PCE) price index, is now being watched closely by traders this week in hopes of additional evidence that inflation in the biggest economy in the world is falling.

This week’s major economic events are capped off by PCE, which also includes the decision made by OPEC+ and statistics from the Chinese purchasing managers’ index (PMI).

According to an OPEC+ source who talked to Reuters, OPEC+ is considering expanding its oil output cutbacks after postponing its policy meeting to this Thursday.

The Australian dollar fell to $0.66105 after momentarily reaching a new high of $0.66155, which had been there for three and a half months. According to data released early on Tuesday, domestic retail sales fell in October compared to September.

Additionally, the kiwi briefly reached $0.61055, its highest level since August 10, before falling back to $0.61005. At its monetary policy meeting on Wednesday, the Reserve Bank of New Zealand is anticipated to maintain interest rates at 5.50% for the fourth consecutive meeting.

In other words, the recent decline in the value of the dollar gave the Japanese yen some wiggle room, and the yen maintained steady at 148.10.

More than half of the economists surveyed by Reuters believe the Bank of Japan will finally start moving away from its extremely loose monetary policy at its April meeting, despite the fact that the Fed’s job may be done.

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