The United States of America dollar dropped on Tuesday, December 2, to its lowest in more than three months, weighed down on the first trading day of 2018 by market expectations of a slower pace of interest rate increases by the Federal Reserve amid a tepid U.S. inflation picture.
The greenback’s decline continued the momentum of 2017, the greenback’s weakest annual performance in 14 years, Reuters reports.
“Investors remain skeptical about the Fed’s outlook for three additional interest rate increases this year, especially given the extremely benign inflation backdrop in the U.S.,” said Omer Esiner, chief market analyst, at Commonwealth Foreign Exchange in Washington.
The dollar’s upside was also capped as many of the world’s major central banks such as the Bank of England and European Central Bank are moving toward normalizing their own monetary policies.
Trading volumes were thin. Some strategists said traders were wary of taking big positions ahead of Wednesday’s scheduled introduction of the wide-ranging EU financial markets directive known as MiFID II, aimed at making European markets more transparent and providing better value for investors.
The dollar index hit a 3-1/2-month trough of 91.751 and was last down 0.1 percent at 91.996 .DXY. For 2017, the dollar index slid more than 9.8 percent, its weakest year since 2003.
The euro EUR= added more gains to start the new year, climbing to a nearly four-month high of $1.2082. It was last up 0.2 percent at $1.2033.
The European Central Bank’s Benoit Coeure said on the weekend he saw a “reasonable chance” the bank’s bond purchases would not be extended beyond September.
“It’s a combination of dollar weakness and euro strength. The euro strength is underpinned by some hawkish comments from the ECB’s Coeure,” said Commerzbank currency strategist Thu Lan Nguyen in Frankfurt.
