Us Dollar Closes Its Worst Week After Fed Comments

Us Dollar Closes Its Worst Week After Fed Comments by Adam Rosen last updated on January 08, 2024

US Dollar Closes Its Worst Week In Over 5 Months After Fed Comments

The US Dollar has finally ended its recent week, making it one of the worst weeks ever in almost 5 months. The weekly losses in the US Dollar were driven by the Federal Reserve comments that were more dovish than the other counterparts, such as the ECB.

If we look at the European Central Bank, they remain committed to sustaining the interest rates. However, the Fed has significantly shifted its policy, which sent the US Dollar lower against the EURO, Yen, and the Pound.

150 BPS Rate Cuts In 2024

Next up was the Bank of Japan meeting, for which the investors were closely watching for any hawkish signals. The market is filled with rumors that the BOJ will finally stop its long-term policy of low-interest rates and shift towards a hawkish stance.

After the Fed's meeting, the traders now have more clarity about where the interest rate will be in the middle and end of 2024. The comments from the Fed chair made it very clear that the monetary policy tightening is finally over.

The recent policy has led to a divergence between other banks, such as the ECB and the Federal Reserve. As a result, the US Dollar has almost -2% for the week, making it the largest loss, which was only seen during the middle of July.

The futures market is now even more dovish about the interest rate prospects as they are citing a 75% chance of the first rate cut in March next year. Just a few days ago, the chances of rate cuts were standing near 40%.

By the end of 2024, around 150 bps will be shaved from the US interest rate, which is almost twice as big as the Fed's projections.

The recent fundamental shift has led to a rally in risky assets such as Gold, but it is being done against the loss of the USD.