The dollar index dipped on Friday, reaching a nearly five-month low following data that revealed a further slowdown in annual U.S. inflation in November. This solidified market expectations for a U.S. interest rate cut in March 2024.
The Personal Consumption Expenditures (PCE) price index, a key inflation measure, showed a 2.6% year-on-year increase in November, down from 2.9% in October. The core PCE price index, excluding volatile food and energy components, rose 3.2% year-on-year, marking the smallest increase since April 2021.
Analysts believe this data adds weight to the Federal Reserve’s recent inclination toward a more accommodative monetary stance. The Fed closely monitors the PCE price measures for its 2% inflation target.
Stuart Cole, Chief Macro Economist at Equiti Capital, noted, “This is the Fed’s preferred measure of inflationary pressures, so if you take into account the fact that some of the effect of the tightening delivered to date is still to be felt, then I think the FOMC may well be starting to privately feel that it’s job done as regards getting inflation back under control.”
The dollar faced selling pressure after the Federal Reserve meeting last week, leading traders to anticipate multiple rate cuts in 2024, potentially beginning in March. While Fed officials have pushed back against the notion of rapid rate cuts, the dollar index fell to 101.42, its lowest level since late July.
The dollar index is on track to close the year with a 2% decline. The dovish shift in the Fed’s stance has fueled expectations of a further decline in the dollar into 2024, although the strength of the U.S. economy could temper this descent.
Against the Swiss franc, the dollar weakened to a near nine-year low and was down 0.02%, close to January 2015 levels. The euro was up 0.02%, and the pound gained 0.09% to $1.2703. The yen saw a 0.25% rise against the dollar, while the Australian and New Zealand dollars traded higher.
In the cryptocurrency market, bitcoin slipped 0.34% to $43,726, near an eight-month high. The filing of spot bitcoin and ether ETFs has contributed to the resurgence of the crypto market this year.