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The US dollar recorded its largest weekly decline since June amid a frenzy in the metals market.
The Bloomberg Dollar Index fell by approximately 0.8% this week, closing at its lowest level since early October. The index has now declined by about 8% year-to-date, marking its largest annual drop since 2017. Analysts noted that the thin liquidity this week did not help the already relatively weak dollar. Looking ahead, attention will focus on inflation data to determine the timing of the Federal Reserve’s next rate cut.
DXY Weakens, U.S. Treasury Yields Stumble: Both Constrained by Key Technical Levels Amid Thin Liquidity, Setting the Stage for a Potential Reversal
On Wednesday (December 24), the foreign exchange and bond markets exhibited a pattern of cautious fluctuations amid thin year-end trading. The US Dollar Index touched a two-and-a-half-month low of 97.767, with an annual decline of 9.8%, marking its worst yearly performance since 2017. The yield on the 10-year US Treasury bond briefly fell to 4.139% during the day but quickly rebounded following robust Q3 GDP data, closing near 4.17%. This movement reflects that despite stronger-than-expected US economic growth, market sentiment remains dominated by expectations of further easing by the Federal Reserve. The Japanese yen emerged as a focal point, amid warnings from Japanese authorities regarding potential measures against excessive volatility.
A sharp decline of nearly 10%! The US dollar is on track for its worst year since 2003, with diverging global central bank policies acting as a catalyst for the collapse.
Heightened expectations of Fed rate cuts, coupled with political uncertainty, have triggered a historic selloff in the US dollar, driving it down nearly 10% year-to-date and approaching its worst performance in two decades. By contrast, the ECB and central banks of Australia and New Zealand have adopted a hawkish stance, leading to a broad strengthening of non-US currencies, while gold has surged to record highs; the Japanese yen has emerged as a new market focal point amid intervention risks.
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