Since the start of this week, the US Dollar has been on the back foot showing consistent weakness. As a result of this weakness, the US Dollar has made a 7-month low against the Yen as well as other major currencies. But for now, it seems that the US Dollar has been showing some signs of forming a bottom.
Looking ahead, the currency in the limelight is the Yen, as traders are looking at how the Bank of Japan will adjust its policy of yield control.
If we look at the pair of the Euro and the US Dollar, the EUR has managed to reach $1,0874, which is a 9-month high. Although the EUR/USD has lost some of its steam, it is still trading around $1.0816. Similarly, the AUD/USD is also gaining ground and recently crossed the key level of $0.7000 before stabilizing around $0.6962.
Due to the recent strength from the Japanese Yen, Sterling, Euro, and other currencies, the US Dollar index has touched its lowest point in 7 months. For now, the US Dollar index is trading around 101.77 after turning red due to the drop in US consumer prices.
It seems that the US inflation, which was at a decade's high just a few months ago, is now showing signs of cooling down. As a result of this development, investors are now confident that we will see an end to the Fed's rate hike cycle. In addition, another good news is that we will not see the earlier anticipated interest rate.
If we look at the US Dollar's strength in 2022, it was mainly due to the aggressive rate hike cycle adopted by the Fed. In fact, it was the main reason why the US Dollar index gained 8% in 2022. But with signs of inflation slowing down, the strength of the US Dollar is also fading away.
For the upcoming meeting, there's a 90% chance that we will see an interest rate hike of 25 basis points. On the contrary, the chance for a rate hike of 50 basis points is only 9%.