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The Dollar Rose From Its Lowest Level In Three Months

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The dollar rose from its three-month low on Thursday but is still on track for its biggest monthly decline of the year as investors intensify their bets that the Federal Reserve has finished raising interest rates ahead of today’s crucial inflation report. The euro fell after “lower-than-expected” French consumer price data, following a day of data showing slowing price growth in Germany and Spain as well, indicating risks of a downturn in Eurozone figures released later.

The dollar index rose from its lowest level since August 11, reached on Wednesday. The index is still down about 3.3% in November amid growing expectations that the Federal Reserve will cut interest rates in the first half of 2024. However, before that, the spotlight will strongly be on the core personal consumption expenditure index on Thursday, which is the Fed’s preferred inflation gauge. US interest rate futures markets are now pricing in rate cuts of over 100 basis points in the next year starting from May, and the yield on two-year Treasury notes is approaching its lowest level since July, falling about 30 basis points this week alone.

The dollar rebounded after inflation in France continued to decline in November, affecting the euro and giving a boost to the US currency. The initial reading of Eurozone inflation was 3.8% on an annual basis, lower than a Reuters poll of economists, which expected 4.1%, and a decrease from 4.5% in October.

At the same time, expectations that the Bank of Japan will soon end its negative interest rate policy led to a withdrawal of the yen from its low levels. In this process, it eased pressure on the central bank to support the currency through direct intervention in the foreign exchange market. Bank of Japan board member Toyuki Nakamura said on Thursday that the central bank is likely to need more time before gradually phasing out its massive stimulus program.

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