The U.S. dollar fell as markets anticipate that the Federal Reserve will not raise interest rates any further

By OXShare

On Wednesday, the dollar struggled at lower levels following a decrease in value overnight due to a surprisingly weak inflation rate in the United States. This has led to speculation that the Federal Reserve has finished raising interest rates.

On the other hand, there was a rise in the value of the Chinese yuan outside of China following better-than-expected growth in domestic industrial production and retail sales.

Rob Carnell, ING's Asia-Pacific Head of Research and Chief Economist, observed that the activity data in China's economy indicated a notable lack of progress, serving as additional proof of a sluggish growth rate.

The offshore yuan briefly rose to its highest value in three months, reaching $7.2385 against the dollar, but then slightly decreased to $7.2477.

Official data revealed that simultaneously, China's property sector experienced a further decline in sales and a significant drop in investment in real estate during the month of October.

Carnell stated that as the issues in the sector show no signs of resolving, it is probable that these problems will affect other areas of the Chinese economy, resulting in a slight decrease in overall performance.

The New Zealand dollar, which is often used as a substitute representation for China's currency, increased to its highest value in a month, reaching $0.6029 against the US dollar.

The decrease in value of the dollar caused a boost in other currencies, including the euro which is slightly below a high it reached on Tuesday, after more than two months.

Currency market activity became frantic as a result of data indicating that U.S. consumer prices remained unchanged in October, with the yearly increase in underlying inflation being the lowest in two years. From October of the previous year, the Consumer Price Index (CPI) increased by 3.2%, which was below the predictions made by economists. This was a slight decrease compared to the 3.7% rise observed in September.

According to the FedWatch Tool by CME Group, the information led market participants to highly doubt the possibility of another increase in interest rates at the Federal Reserve's December monetary policy meeting. However, the likelihood of a rate reduction in May of the following year rose to about 50%.

The swift response from traders to the changed market prices led to a significant 1.5% decrease in the value of the dollar against leading currencies. Simultaneously, the yields on U.S. Treasury bonds, which have played a role in strengthening the dollar, experienced a significant drop.

The dollar index, a measurement of the currency in comparison to other currencies, was recently at 104.14, only slightly above its lowest point in two months on Tuesday, which was 103.98.

After reaching its highest level since August the previous day, the euro stabilized around $1.08725 due to the weakened position of the dollar.

The British currency was exchanging at $1.2489, which was approximately the same as its value back in September.

The yen, which had been struggling, found some relief when the value of the greenback decreased overnight. As a result, the yen slightly improved from its lowest point in a year on Monday, which was 151.92.

The dollar/yen exchange rate rose slightly to 150.68 as new information showed that Japan's economy shrank from July to September. This development presents challenges for the central bank's plan to slowly reduce its accommodative monetary policy.

However, according to Moh Siong Sim, a currency strategist at the Bank of Singapore, there are factors such as lower U.S. yields and the possibility of Japanese government interference, which may prevent the yen from depreciating even further than it already has.

He mentioned that due to those factors and the Federal Reserve's probable inclination towards a somewhat strict approach, the dollar/yen situation will remain within a certain range for now.