The dollar index (DXY00) on Monday fell by -0.20%. The dollar was under pressure Monday after T-note yields gave up an early advance and turned lower, weakening the dollar’s interest rate differentials. Also, expectations that Tuesday’s U.S. Oct CPI report will show an easing of inflation expectations weighed on the dollar. In addition, lower T-note yields undercut the dollar. A supportive factor for the dollar was weakness in the yen as the yen slid to a 1-year low against the dollar on Monday.
The markets are discounting a 14% chance for a +25 bp rate hike at the next FOMC meeting on Dec 12-13 FOMC and a 28% chance for that +25 bp rate hike at the following FOMC meeting on Jan 30-31, 2024. The markets are then expecting the FOMC to begin cutting rates by mid-2024 in response to an expected slowdown in the U.S. economy.
