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The Dollar Rebounded in Morning Trading

The dollar rebounded amid the Fed's hawkish statements; the Australian dollar is falling

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The US dollar rose in early European trading, on Tuesday, rebounding from its recent lows, while the Australian dollar fell after the Reserve Bank of Australia hinted about the end of its interest rate hike cycle.

The dollar is gaining ground amid the more hawkish tone from the Federal Reserve, as the dollar index fell by 1.3% last week, marking its largest drop since mid-July, after the Federal Reserve signaled pessimistic prospects for interest rate hikes this year. However, this stance changed after Minneapolis Federal Reserve President Neel Kashkari hinted the need for more interest rate hikes to control inflation. Kashkari said, “The economy has proven to be resilient even though we have raised interest rates significantly over the past two years. This is good news,” and added, “We have not fully resolved the inflation issue. There is still more work to be done.” The Federal Reserve kept its short-term interest rate target unchanged at a range between 5.25% and 5.5% last week. Federal Reserve Chairman Jerome Powell is scheduled to speak on Wednesday and Thursday, and traders will be looking to see if this more hawkish stance is supported.

The euro weakened after a decline in German industrial production, adding to the increasing signs that the largest economy in the Eurozone is facing difficulties and is likely to end the year in a recession. Robert Holzman, a member of the European Central Bank, said on Monday that the European Central Bank should remain vigilant about inflation and be prepared to raise interest rates again if necessary, after the central bank halted its tightening cycle in late October. However, Holzman, the governor of the Austrian Central Bank, is on the hawkish side compared to some policymakers in the European Central Bank, and his views may not be held by the majority of his colleagues given the economic slowdown in the region.F

The Australian dollar fell after the Reserve Bank of Australia raised interest rates to their highest level in 12 years, as expected, but changed its tone regarding future expectations, which was seen as pessimistic by traders. They began to bet that the central bank had finished its interest rate hike cycle, leading the Australian dollar to its largest one-day drop in a month.

Chinese exports disappointed in October, leading to a 0.2% increase in the US dollar against the Chinese yuan, as data showed that China’s exports contracted more than expected in October, while the country’s trade surplus shrank to its lowest level in 17 months.

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