Dollar faces worst month in a year

The US dollar faced a decline on Tuesday, maintaining a level around 103.1, marking its lowest point in three months. This downward trajectory is attributed to the anticipation that the Federal Reserve is nearing the conclusion of its series of interest rate hikes. Concurrently, Treasuries experienced a marginal dip, and S&P 500 futures, along with European contracts, recorded losses. The bearish sentiment extended to Asian markets, with shares in Japan and Hong Kong witnessing a downturn.

Dollar hovers near three-month lows

The weakened state of the dollar index can be linked to recent lackluster US economic data, reinforcing the belief that the Federal Reserve may halt rate increases and potentially initiate rate cuts in the upcoming year. Markets are currently pricing in a 25% probability of the central bank beginning rate cuts as early as March 2024, with the likelihood increasing to 45% by May. Notably, data released on Monday revealed a 5.6% decline in US new home sales to 679,000 units in October, falling short of the 723,000 units expected by analysts. Investors are now eagerly awaiting key indicators such as PCE prices, the Fed's preferred inflation gauge, as well as personal income and spending data, and the ISM Manufacturing PMI for further insights. Additionally, various Fed officials are scheduled to deliver remarks throughout the week. The dollar exhibited broad-based weakness, particularly against the yen and antipodean currencies.

Despite the dollar's decline, hedge funds increased their bullish dollar bets this month. As of November 21, a metric measuring net dollar positioning, reflecting leveraged funds' long bets on the greenback, reached its highest level since February 2022, according to CFTC data.

BoE's Ramsden forecasts two-year path for UK inflation targets

In a separate development, Bank of England Deputy Governor Dave Ramsden indicated that it would take an additional two years to bring UK inflation back to its target. Speaking at the HKMA-BIS conference, Ramsden noted that price gains in the UK have become more "homegrown," expressing growing confidence in the economic outlook. Despite inflation in UK shops falling to a 17-month low of 4.3% this month, the British Retail Consortium warned of potential future increases. Factors such as higher property taxes and a rise in the minimum wage could contribute to upward cost pressures.