Dollar hits 3-month low after Fed official signals rates may start to fall

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The dollar hit a three-month low on Tuesday and US Treasury yields slid as investors grew increasingly confident that the US Federal Reserve will start cutting interest rates by mid-2024.

The US currency slid 0.4 per cent against a basket of six peers to trade at its lowest level since mid-August.

The decline accelerated after Christopher Waller, one of the Fed’s most hawkish policymakers, signalled that interest rates could start to fall “if we see disinflation continuing for several more months”. 

Fed chair Jay Powell said this month that the central bank was not thinking about rate cuts “now at all”.

But investors are betting that the Fed will cut interest rates by 0.25 percentage points by June in the first of four quarter-point cuts next year.

The 10-year Treasury yield, which moves inversely to price, fell 0.04 percentage points on Tuesday to 4.35 per cent. The slide takes yields to a level last seen before September’s Fed meeting, when warnings that interest rates were going to remain higher for longer triggered a global bond rout.

The dollar is now on course for its worst monthly performance in a year, having shed 3.6 per cent since the start of November.

Line chart of DXY Index showing Dollar slips to three-month low as investors bet on rate cuts

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