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Dollar hits a more than three-month low on Fed rate cut bets

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The dollar slid to an over three-month low as bets grow that the Federal Reserve could begin cutting rates early next year

The U.S. dollar slid across the board to reach a more than three-month low against its major rivals on Wednesday, while the New Zealand dollar soared after its central bank suggested that more rate hikes could be in the offing.

The kiwi was last 0.78 per cent up at $0.6184, having soared more than 1 per cent earlier in the session to a four-month high of $0.6207 after the Reserve Bank of New Zealand (RBNZ) on Wednesday cautioned that further policy tightening might be required if price pressures did not ease.

The upward revision to the cash rate and inflation forecasts for 2024 keeps rate hike bets alive, while New Zealand dollar shorts rushed for the exit, said Christopher Wong, a currency strategist at OCBC.

The Australian dollar edged down 0.11 per cent to $0.6642, paring some of its gains after having scaled a four-month high of $0.66765 earlier during the session.

Data out on Wednesday showed Australia’s inflation eased by more than expected in October as goods prices dropped, while core inflation also edged lower.

In the wider currency market, the U.S. dollar slid to an over three-month low against a basket of currencies at 102.46, as bets grow that the Federal Reserve could begin cutting rates early next year.

Fed Governor Christopher Waller on Tuesday flagged a possible rate cut in the months ahead, feeding market expectations that U.S. rates have peaked.

The dollar dropped over 0.5 per cent to 146.675 yen, its weakest level in more than two months. It last bought 147.06 yen.

The euro pushed back above $1.10 to a more than three-month high of $1.1017. It last traded $1.0998.

Market pricing currently shows an over 40 per cent probability the Federal Reserve could begin easing monetary policy as early as next March, as compared to around 22 per cent probability a day earlier, according to the CME FedWatch tool.

Sterling similarly scaled a three-month high of $1.2733 and last traded $1.27155, while the dollar index was flat at 102.63.

The index was eyeing around 4 per cent loss for November, its worst monthly performance in a year.

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