The US Dollar Index (DXY), which gauges the value of the US dollar against a mix of six international currencies, was in the red at about 99.45 during early European trading on Thursday. Rising expectations for a potential interest rate cut by the Federal Reserve (Fed) at its December meeting have contributed to this decline.
The dollar is set for its largest weekly drop since July, pulling back from a six-month peak reached last week, as traders lean towards the likelihood of a Fed rate cut amid increasing uncertainty and dovish comments from Fed officials. Currently, markets are estimating nearly an 83% chance of a rate cut next month, a significant jump from 50% just a week prior, as indicated by the CME FedWatch tool.
Earlier this week, Fed Director Christopher Waller mentioned that current data points to a weak labor market that could justify another quarter-point rate reduction in December. Additionally, San Francisco Fed President Mary Daly expressed her support for a rate cut next month, citing a possible sudden decline in the job market as a more significant concern than a potential rise in inflation.
On another note, a surprisingly strong US economic report released on Wednesday may help mitigate losses for the dollar. The US Census Bureau reported a 0.5% increase in new orders for durable goods in September, exceeding expectations of a 0.3% rise and following a revised 3% increase in August.
Moreover, for the week ending Nov. 22, new claims for unemployment insurance in the U.S. fell by 6,000, reaching a seasonally adjusted 216,000, down from 222,000 the previous year (revised from 220,000). This figure was below the market consensus of 225,000.
