The dollar fell for a third consecutive day against its rivals on Monday on growing bets the U.S. central bank will press the pause button on its rate hike cycle in the coming months.
Notwithstanding strong monthly U.S. jobs data for December last week, market watchers believe the world’s biggest economy is losing momentum with Federal Reserve chair Jerome Powell’s comments adding to expectations the central bank may adopt a more cautious outlook.
On Friday, Powell told the American Economic Association that the Fed is not on a preset path of interest rate hikes and that it will be sensitive to the downside risks markets are pricing in.
Against a basket of its rivals, the dollar declined a quarter of a percent to 95.92, nearing a 2-1/2 month low hit last week.
“Growing expectations that the Fed will pause on its rate hike cycle is weighing on the dollar and that will be a big factor in the coming days,” said Lee Hardman, an FX strategist at MUFG in London.
The dollar outperformed other currencies in 2018 due to the Fed being the only major central bank to hike rates. If the Fed holds rates in 2019, analysts see slim chances of further greenback appreciation. Money markets expect no more rate hikes from the Fed this year.
The euro and the Australian dollar led gainers with the latter also benefiting from the weekend news of growing policy stimulus in China.
After a slew of weaker-than-expected manufacturing data, Chinese authorities on Friday cut reserve requirements for all banks by 100 basis points. The move frees up $116 billion for new lending as it tries to reduce the risk of a pronounced fall in the pace of economic growth.
The Australian dollar, whose fortunes are closely correlated with China, gained half a percent to $0.7140.
The dollar advanced 0.2 percent versus the offshore yuan to 6.8483.
Financial markets are also optimistic about U.S. officials meeting with their counterparts in Beijing this week for the first face-to-face talks since President Donald Trump and President Xi Jinping on Dec. 1 agreed to a 90-day truce in their trade war.