On Monday, the dollar (USD) slightly increased, temporarily pulling away from recent six-month lows against a basket of key currencies. Recent market speculation is that the US Federal Reserve’s tightening cycle may be coming to an end, and the fragile state of sentiment has caused it to decline.
Additionally, the first trading day of the year was quiet since several nations, including important commercial hubs like Britain and Japan, were closed for a holiday.
The dollar index (DXY), which compares the value of the dollar to a basket of other major currencies, was trading slightly higher at 103.65, up about 0.16% from the recent lows of about 103.38, which were reached last week.
In other news, the euro (EUR) was trading at $1.0680, down almost a third of a percent but still close to its highest levels since June.
Dollar Weaker Against the Yen
The dollar was slightly weaker against the yen (JPY) at 130.94 after falling to its lowest levels since August last month.
Speaking on the dollar’s performance, Ulrich Leuchtmann, the head of forex research at Commerzbank, said: “There is an attempt by the dollar index to pull higher today, but we do see that it is losing a good part of the strength it gained last year.” He further noted:
“After the last Fed meeting, the market was not convinced that the Fed won’t cut rates later in 2023. It’s going to be an interesting year.”
US Fed Decision Critical in Near Term
The Fed has begun to slow the rate of increases after raising rates by a total of 425 basis points since March to rein in rising inflation. The Fed’s tightening supported the dollar index’s 8% increase last year, which was its largest annual increase since 2015.
Markets continue to pay close attention to information about central banks, inflation, and other indicators of how lengthy and severe a recession may be.
The managing director of the International Monetary Fund, Kristalina Georgieva, said on Sunday that 2023 will be a difficult year for the world economy.
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