Author credit: Article adapted from Adam Button via ForexLive on TradingView
Title: USD Weakens to Close the Week as US Stocks Climb and Global Markets Shift Focus
The US dollar ended the week broadly lower as investor sentiment turned risk-on, fueling gains in equity markets and prompting a move away from the greenback. Markets reacted to a mix of economic data, shifting rate expectations, and global market dynamics that influenced currency flows. The week saw a broader rebalancing amid diverging central bank policies and relatively calm trading conditions during the post-Thanksgiving period in the United States.
Here’s a detailed overview of the forex market wrap for November 28, further expanded and contextualized with additional data and insights.
US Dollar Drifts Lower
The US dollar index (DXY) slipped toward the end of the week, continuing its downward trend that began in early November. The dollar’s weakness has been largely tied to changing expectations around Federal Reserve policy, specifically the anticipation that interest rate hikes have reached their peak and a pivot toward easing could arrive in 2024.
– The DXY dropped from around 104.20 to the 103.40 area during Wednesday’s session, extending its monthly decline to nearly 3 percent.
– This marks the weakest monthly performance for the dollar since November 2022.
Market participants are recalibrating their outlook on the Federal Reserve, increasingly pricing in a scenario where inflation moderates and allows for rate cuts in the second half of 2024.
– Fed funds futures are currently pricing in roughly 90 basis points of rate cuts for the coming year, beginning as early as May or June.
– Fed officials have delivered mixed messages, with some like Governor Christopher Waller signaling openness to ease if inflation cools further, while others continue to stress patience.
US Economic Data and Fed Sentiment
Wednesday brought a handful of economic releases from the US, though none were particularly market-moving. Among the data points:
– Initial jobless claims fell slightly to 218,000, below the consensus estimate of 220,000, indicating a still-tight labor market.
– Durable goods orders for October showed a larger-than-expected fall of 5.4 percent, primarily driven by the volatile transportation sector. Excluding transportation, core orders rose 0.6 percent, slightly above forecasts.
– Personal consumption data and Core PCE inflation figures (the Fed’s preferred inflation metric) are due on Thursday, ahead of Friday’s PMI readings.
while the data offered a mixed take on the health of the US economy, markets leaned toward a dovish interpretation. The lack of any major inflation surprise left the door open to rate cuts down the line, contributing to weaker demand for the dollar.
Equities Break Higher, Risk Appetite Rises
US stocks finished Wednesday’s session higher, continuing a strong November rally led by tech and financial shares. The S&P 500 rose to a new 2023 high, while the Nasdaq posted its fourth consecutive weekly gain.
– The S&P 500 is now up more than 8 percent for November.
– Investors are betting that rate hikes are behind us and that a soft landing is likely, with growth moderating without tipping into recession.
Key drivers of the equity rally include:
– Easing Treasury yields with the US 10-year yield falling to around 4.26 percent.
– Diminished inflation fears and a reduction in volatility.
– Strong earnings from tech giants and other S&P 500 companies.
– Rotation into risk assets like small caps, cyclicals, and emerging markets, which gained momentum this week.
Lower bond yields and improved sentiment triggered repositioning across asset classes. This risk-friendly environment typically accounts for dollar weakness, particularly against higher-yielding or risk-aligned currencies.
Forex Market Movers: Currency Recap
Here’s a broad overview of the best and worst performing major currencies this week:
Best performers:
– British Pound (GBP)
– Swiss Franc (CHF)
– Euro (EUR)
Worst
Read more on USD/CAD trading.