The U.S. dollar hit a 15-month low on Thursday, as investors bet that the Federal Reserve was nearing the end of its current monetary policy tightening cycle.
The dollar index, which measures the greenback against a basket of six major currencies, fell as low as 101.45, its lowest level since March 2022. The euro rose to its highest level against the dollar since May 2022, trading at $1.0730.
The dollar’s decline came after a report showed that U.S. inflation slowed in June, raising hopes that the Fed may not need to raise interest rates as aggressively as previously thought. The report showed that the consumer price index rose 3.1% in June from a year ago, down from 4% in May.
The Fed has raised interest rates by 1.5 percentage points since March in an effort to combat inflation. However, some economists believe that the Fed may now be nearing the peak of its tightening cycle.
“The Fed is probably going to be content to sit back and see how the economy evolves,” said Michael Hewson, chief market analyst at CMC Markets. “If inflation continues to fall, then they may not need to raise rates as much as they had previously thought.”
The dollar’s decline is also being supported by a weaker U.S. economic outlook. The U.S. economy grew at an annual rate of 1.6% in the first quarter, the slowest pace since 2020. And economists believe that growth will slow further in the second quarter.
“The U.S. economy is starting to show signs of slowing,” said Hewson. “This is likely to weigh on the dollar in the coming months.”
The dollar’s decline is likely to be a boon for U.S. exporters, who will see their goods become more competitive in overseas markets. However, it could also hurt U.S. consumers, who will see the prices of imported goods rise.
The dollar’s outlook remains uncertain, but it is clear that the greenback is under pressure. The Fed’s tightening cycle is nearing its end, and the U.S. economy is showing signs of slowing. These factors are likely to keep the dollar under pressure in the coming months.
Here are some of the key implications of the dollar’s decline:
- U.S. exporters will see their goods become more competitive in overseas markets.
- U.S. consumers will see the prices of imported goods rise.
- The dollar’s decline could weigh on the U.S. stock market, as investors become more risk-averse.
- The dollar’s decline could boost the value of other currencies, such as the euro and the Japanese yen.
It remains to be seen how long the dollar’s decline will last. However, it is clear that the greenback is under pressure, and this could have significant implications for the U.S. economy and the global economy.