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Dollar set to end 2023 with a loss


The dollar index was on track to lose more than 2% for the month and nearly 2.2% for the year

The dollar looked set on Friday to end 2023 with a loss, reversing two consecutive years of gains, dragged by market expectations that the U.S. Fed could begin easing rates next March.

The currency stayed broadly on the back foot on the last trading day of the year, with currency moves subdued amid a holiday lull ahead of the New Year.

Since the Federal Reserve launched its aggressive rate-hike cycle in early 2022, expectations of how far U.S. rates would have to rise have been a huge driver of the dollar for the most part of the last two years.

Against a basket of currencies, the greenback dropped 0.02% to 101.18, staying near a five-month low of 100.61 reached in the earlier session.

The dollar index was on track to lose more than 2% for the month and nearly 2.2% for the year.

The dollar is likely to come under pressure in 2024 as the Fed formally signals a dovish pivot, but we need to see how growth outside the U.S. transcends, said Charu Chanana, head of FX strategy at Saxo.

A softening dollar meanwhile brought relief to other currencies, with the euro at $1.1076, staying near a five-month high, and on track to gain more than 3% for the year.

Sterling was similarly on track for a 5% yearly rise, its best performance since 2017. The British pound was 0.04% higher at $1.2740.

While policymakers at the ECB and the BoE did not signal any imminent rate cuts at their policy meetings this month, traders continue to bet that a Fed pivot and the prospect of lower U.S. rates next year would give room for other major central banks to follow suit.

We believe central banks in the advanced economies are on pace to pull forward the timing of pivoting to interest rate cuts, said economists at Wells Fargo in their 2024 outlook.

As far as the outlook for G10 central banks, the ‘higher for longer’ stance that many institutions adopted in 2023 is becoming less of a priority, they added.

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