The US dollar weakened and is heading for one of its worst weeks since mid-year as markets increasingly believe the Federal Reserve will cut interest rates in December. Expectations of this policy easing arose after a series of data showed inflation starting to tame, retail sales slowing, and consumer confidence declining. Fed interest rate futures now project a probability of a 25 bps rate cut at over 80%, much higher than a week earlier. In such a situation, US bond yields tend to fall, weakening the dollar's appeal as a yield-bearing asset.

Dovish comments from several Fed officials have also weighed on the greenback. Figures such as Mary Daly and Christopher Waller have signaled that room for interest rate cuts is opening up if inflation continues to move closer to the 2% target. Politically, the market is also considering the scenario that Kevin Hassett—known for his support of low interest rates—could replace Jerome Powell as Fed Chair under the Donald Trump administration. The combination of a "softer Fed" and a "low-interest White House" has market participants starting to position themselves for a weaker dollar in the coming quarters.

Amid the dollar's weakening, other major currencies such as the euro, the pound sterling, and the Australian dollar have benefited, while gold and silver have also enjoyed an influx of funds as hedge assets. For global market participants, a weaker dollar has two sides: on the one hand, it eases the burden on governments and corporations with dollar-denominated debt, but on the other, it signals that the US economy is entering a slower growth phase. As long as the Fed's interest rate cut narrative remains dominant and is not strongly refuted by subsequent inflation data, pressure on the US dollar has the potential to continue, making the greenback's future movements highly sensitive to each data release and comments from central bank officials. (az)

Source: Newsmaker.id