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Dollar Index Falls as Traders Reassess Rate Hike Path

The U.S. Dollar Index, which measures the Dollar's value against a basket of other currencies, fell 0.4% to 103.267 in early European trading on Monday.

Dollar Bills
Dollar Bills

This followed a 1% drop on Friday. The decrease came as traders reassessed the path of U.S. interest rate hikes in light of the release of the December jobs report, which showed smaller-than-expected payroll and wage growth. In addition, data showed that the U.S. services industry contracted for the first time in over 2.5 years in December, indicating a cooling economy.

As a result, the market is now anticipating a 25 basis point hike in February, down from the previous expectation of a 50 basis point hike in December.

Chinese Yuan Hits Four-Month High as Borders Reopen

The Chinese Yuan reached a four-month high on Monday, with the USD/CNY exchange rate falling 0.9% to 6.7748, as China reopened its borders for international travel over the weekend. This marks the country's biggest pivot away from its strict zero-COVID policy, which has contributed to its economic slowdown over the past three years.

Euro and Pound Strengthen Against Dollar

The EUR/USD exchange rate rose 0.5% to 1.0692 on Monday, aided by data showing an increase in German industrial production in November. The GBP/USD exchange rate rose 0.6% to 1.2159, following a 1.5% gain on Friday. The USD/JPY exchange rate rose slightly, by 0.1% to 132.25, while the AUD/USD exchange rate, sensitive to risk, gained 0.8% to 0.6930. The USD/BRL exchange rate has yet to trade on Monday. Still, the Brazilian real is expected to be in focus as traders react to the news of supporters of former President Jair Bolsonaro storming government buildings over the weekend.