US Dollar Heads for Worst Weekly Performance Since July
The US dollar is facing its most challenging week since late July as traders increasingly bet that the Federal Reserve will implement another rate cut next month. This significant shift in market sentiment comes despite ongoing concerns among Fed policymakers about persistently elevated inflation levels.
Market Turmoil and Technical Disruptions
The currency markets experienced additional turbulence when an overnight outage at CME Group's CyrusOne data centers halted trading on its widely-used currency platform. The technical issue, caused by a cooling system failure, also affected stock and commodity futures trading. According to LSEG data, trading operations resumed by 1335 GMT after being inactive for over 11 hours.
The dollar index, which measures the greenback's strength against six major currencies, showed some recovery with a 0.06% increase to 99.59. However, it remains on track for a 0.61% weekly decline, marking its largest drop since July 21.
Economic Data Fuels Rate Cut Expectations
Market analysts point to weakening labor data as the primary driver behind the increased expectations for Fed rate cuts. Eric Theoret, FX strategist at Scotiabank in Toronto, noted that "the data overall definitely leaned towards a cut" following the post-shutdown release of economic indicators.
Fed funds futures traders are now pricing in an 87% probability of a rate cut at the conclusion of the Fed's December 9-10 meeting, a substantial increase from the 71% odds recorded just one week ago. Fed officials will enter a blackout period starting Saturday ahead of their crucial meeting.
Global Currency Movements and Central Bank Watch
The currency markets appeared relatively unfazed by the CME outage, particularly given the already light trading volumes following the US Thanksgiving Day holiday. Karl Schamotta, chief market strategist at Corpay in Toronto, explained that "liquidity remains thin given that most participants executed month-end trades ahead of yesterday's Thanksgiving holiday."
Meanwhile, attention is turning toward the Bank of Japan as Governor Kazuo Ueda prepares to speak on Monday. Traders are keenly watching for signals about a potential rate increase at the BOJ's December meeting. James Lord, head of FX and emerging market strategy at Morgan Stanley, commented that "with dollar yen at these levels and the fiscal package that has been announced by the government, there's a possibility that we will see a rate hike in the December meeting."
The Japanese government finalized a $117 billion supplementary budget for this financial year to fund a massive stimulus package, with most financing coming through new debt issuance.
In other currency movements, the euro fell 0.09% to $1.1585, while the Japanese yen strengthened 0.03% against the dollar to 156.25. Sterling declined 0.21% to $1.3211 but recorded its best weekly performance since early August with a 0.85% gain.
The Canadian dollar extended its gains after data revealed that Canada's economy grew at a much faster pace than expected in the third quarter, driven by crude oil exports and increased government spending. The loonie surged 0.48% against the greenback to C$1.396 per dollar.
In cryptocurrency markets, bitcoin showed positive momentum with a 1.40% gain to reach $92,680, reflecting continued investor interest in digital assets amid traditional currency fluctuations.
