The US Dollar faced renewed pressure at the start of this week, as the Dollar Index slipped below 108.00, marking its lowest close since late December. This decline follows a period of strength that saw the Dollar Index end last week at 109.35. The broad setback has significant implications for global markets, with the swaps market indicating a strong likelihood of a 25 basis point interest rate hike by week's end. Meanwhile, Chinese officials received temporary relief as the dollar eased from the upper limits of its approved band.
On the technical front, a move above JPY156.50 suggests an improvement in the dollar's outlook against the Japanese yen. However, momentum indicators indicate an upward shift, and the British pound remains unproven amidst these developments. The anticipation of a Federal Reserve rate hike is mirrored in the swaps market, which continues to discount a robust 95% probability of such an event occurring soon.
The dollar's retreat has also influenced other currency markets. In China, the dollar peaked near CNH7.2970 yesterday, marking a 38.2% retracement from its decline since the end of last year. This movement has provided breathing space for Chinese financial authorities as they navigate ongoing economic challenges.
In North America, US index futures have extended their rally, with S&P 500 futures climbing approximately 0.4% and Nasdaq futures advancing nearly 0.8%. The dollar's heavier tone against the Mexican peso today has mostly held above MXN20.54, despite disappointing November retail sales in Mexico, which fell by 0.1% following a previous decline of 0.3% in October.
Anticipation is also building in Europe, where the swaps market remains confident of an impending European Central Bank (ECB) rate cut next week. Market participants expect forward guidance to suggest another cut in March, further impacting currency valuations.
The Dollar Index's slide below 108.00 in North America sets a new technical target near 107.25. The light calendar today features the December Leading Economic Indicator Index, a development that could provide additional insights into economic trends.
Despite little progress from the dollar, even as the 10-year Treasury yield unwound recent gains to return to nearly the monthly low of approximately 4.51%, global attention remains fixated on upcoming central bank decisions and their potential impacts on currency movements.