After witnessing a steep decline and falling to a four-year low against the Euro on Tuesday, the US Dollar rose marginally on Wednesday ahead of the US Federal Reserve Meeting.
The dollar index, which tracks the US currency against six major peers, rose 0.20 per cent to 96.84 after touching 96.554 on Tuesday. Despite this uptick, the index has dropped nearly 11 per cent so far this year, and investors anticipate further declines following its recent pause.
On the contrary, the Euro rose 0.5 per cent to reach $1.827 on Tuesday, marking its strongest level since September 2021 against the greenback.
Back home, the Indian rupee began Wednesday’s session on a stronger note at 87.84 against the US dollar and in early trade appreciated further to 87.81, marking a 28-paise rise from its previous close of 88.09.
“A sharp drop in the Dollar Index and US treasury yields is the majorly reason behind the strength in the rupee. DXY has support at 96.37 levels (low of 2025), but if broken, then it opens doors for 95.20 levels (seen in Feb 2022). The market participants seem to have unwound long side USDINR position considering broader USD weakness against the majors and also awaiting some positive feeds on the India-US tariff trade policy front,” said Kunal Sodhani, Head – Treasury, Shinhan Bank.
Meanwhile, Anuj Gupta, Director, Ya Wealth Research & Advisory, believes that the overall trend in the US Dollar is looking negative.
“The Federal Reserve is widely expected to cut interest rates by 25 basis points at the conclusion of this meeting on Wednesday. US recent data showed a sustained deterioration in the labour market, while inflation is not up to the market as the percentage data released by the US. The euro also increased against the dollar as data released on Tuesday showed that the U.K. unemployment rate remained at a near four-year high in July. Overall trend of the dollar is looking negative, and it may test 92 to 89 levels,” Gupta said.
Here are 5 key reasons why the US dollar is falling:
According to Rahul Kalantri, VP Commodities at Mehta Equities Ltd, these are the possible five reasons behind the decline in the US Dollar rate.
US Fed rate cut buzz
The dollar index eased as markets priced in aggressive Fed rate cuts.
Weak US data
The dollar index slipped amid weak US jobs data, which has fuelled Fed rate cut bets. This has weighed on Treasury yields, dragging them lower and reducing dollar demand.
US bonds
Weak economic indicators and falling US bond yields on rate cut expectations pressured the dollar index.
Euro/Yen gaining momentum
The Euro and Yen have been gaining against the dollar as their central banks appear less dovish than the Fed.
Global investors shifting focus
Global investors are shifting funds into equities, commodities, and emerging market currencies as confidence improves, reducing safe-haven demand for the dollar.
Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.
