Against the greenback, the euro rose nearly 0.5% overnight and edged toward a six-month peak hit at the start of the week.Sterling similarly eked out a small gain overnight and last rose 0.23% to $1.22695, not far off Monday’s six-month high of $1.2345.
“We’ve got a very awkward outlook the next year, which is playing into traders’ thought process. We’re looking…at much lower growth globally, lower growth out of the US as well,” said Jarrod Kerr, chief economist at Kiwibank.It has fallen nearly 7% this quarter, putting it on track for the largest quarterly decline since 2010. “It’s very much positioning at the moment,” Kerr added, ahead of the Fed’s policy meeting next week.
Expectations that the Fed will scale back on the pace of its interest rate hikes and that rates may not rise as high as previously feared, have knocked the dollar more than 8% off its two-decade peak against a basket of currencies hit in September. Yields on US Treasuries have also slumped, with the two-year yield, which typically reflects interest rate expectations, last at 4.3035%, away from its 15-year high of nearly 4.9% hit last month.
A closely watched part of the US Treasury yield curve, measuring the gap between yields on two- and 10-year Treasury notes was inverted at -83.7 bps.The European Central Bank and the Bank of England will also announce their monetary policy decisions next week, with markets keenly watching for guidance on 2023’s outlook.