Daily Market Pulse

Growth Over Inflation? Weak Dollar Signals Hope for Early Fed Rate Cuts
3 minute readThe U.S. dollar, as measured by the DXY index, plunged to its weakest point in five months on Wednesday, pressured by a substantial drop in Treasury rates, with the 2-year yield sinking below 4.26%, its lowest level since late May.
While market moves were likely amplified by thin liquidity conditions, characteristic of this time of year, wagers that the Federal Reserve will cut rates materially in 2024 have been the primary bearish driver for the greenback in recent weeks.
The Fed’s pivot at its December FOMC meeting has reinforced ongoing market trends. For context, the central bank embraced a dovish stance at its last gathering, indicating that talks about reducing borrowing costs have begun, possibly as part of a strategy to prioritize growth over inflation.
EUR/USD - The single European currency continues to surprise and has already managed to secure a level of 1.11, after a surprise rise during yesterday where in a shallow market due to the Christmas holidays but also without any important news in the daily agenda continued its upward momentum.
GBP/USD- The pair extends its upside above the 1.2800 mark during the Asian trading hours on Thursday. The decline in inflationary pressure in the US economy and dovish comments from the Federal Reserve (Fed) have dragged the US Dollar (USD) lower and lent some support to GBP/USD.
USD/CAD - The biggest drivers of USD/CAD will probably be the general direction of the USD (which we expect to be weaker as US growth slows) and the relative shifts in Canadian and US longer-dated bond yields. A falling US yield environment and a weakening Dollar should drag USD/CAD lower in the absence of fresh new idiosyncratic drivers of the CAD.
USD/JPY - The pair is consistently declining as investors are confident about the rate cuts by the Federal Reserve (Fed) from March 2024. The asset has dropped and is expected to witness more losses amid a cheerful market mood.
USD/MXN attempts to snap its recent losses, holding ground during the European session on Thursday. The USD/MXN faces challenges due to the weaker US Dollar (USD), which could be attributed to the potential for rate cuts by the Federal Reserve (Fed) in the first quarter of 2024. On Mexico’s side, the Jobless Rate for November will be released by the National Institute of Statistics and Geography of Mexico (INEGI) on Thursday.