The U.S. dollar has taken a nose-dive to a one-year low, leaving economists bewildered and speculating about the future of the Federal Reserve’s rate-tightening cycle. With the Dollar Index dropping by 0.2% at 02:00 ET (06:00 GMT), and trading at levels not seen since April last year, the currency is now on course for a weekly decline of over 1%. This sudden and unexpected drop follows the release of the US producer prices index (PPI) for March, which fell by a staggering 0.5% from the previous month. The annual PPI has also experienced a significant slowdown, with a rise of 2.7% YoY, marking its smallest gain in over two years. Moreover, the core PPI, which excludes the volatile food and energy components, fell 0.1% from February but increased by 3.4% from the previous year. This news comes in the wake of consumer prices posting the smallest annual increase since May 2021, adding to the confusion and bewilderment of the markets. All of this has further heightened expectations of a potential early end to the Federal Reserve’s rate-tightening cycle.
As a result of the slump, the EUR/USD has risen by 0.2% to 1.1069, a fresh one-year high. Meanwhile, the GBP/USD has climbed by 0.1% to 1.2535, a 10-month high, with the Bank of England expected to raise rates again in May. Although the AUD/USD has remained largely flat at 0.6782, it is set for a 1.7% increase this week after a strong employment report in Australia. This has spurred increased bets that the Reserve Bank may raise rates higher. Finally, the USD/JPY has dropped by 0.1% to 132.50, while the USD/CNY has plummeted by 0.5% to 6.8382, with the yuan helped by PBOC Governor Yi Gang reiterating the government’s 5% GDP target for 2023.
