US dollar skids to 3-1/2-month low, headed for biggest monthly drop in a year

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) -The U.S. dollar sank to its lowest in more than three months on Tuesday as investors continued to take the view that growth in the world's largest economy is starting to slow down, with the market starting to price in a rate cut by the first half of the year.

U.S. rate futures were pricing in a 33% chance of a rate cut in March, rising to a roughly 65% probability in May, according to the CME's FedWatch tool. Those odds were at 21% and roughly 50% late on Monday.

The dollar extended losses after Fed Governor Christopher Waller, a hawkish policymaker, flagged a possible rate cut in the months ahead.

If the decline in inflation continues "for several more months ... three months, four months, five months ... we could start lowering the policy rate just because inflation is lower," he said.

The dollar index, which measures its value against six major currencies, fell as far as 102.60, the lowest since mid-August. It was last down 0.3% at 102.82. The index is on track for a loss of 3.6% in November, its worst performance since November 2022.

"The dollar bounced over the summer, with the help of divergence -- the outperformance of the U.S. economy. Now the dollar is weakening on the new convergence," said Marc Chandler, chief market strategist, at Bannockburn Forex in New York.

"It's not that Europe or China is looking much better. But they're slowing down and the U.S. looks like it's slowing down."

Tuesday's U.S. data, however, showed mixed results.

U.S. consumer confidence rose in November after three straight monthly declines, a survey showed. The Conference Board said its consumer confidence index increased to 102.0 this month from a downwardly revised 99.1 in October.

At the same time, U.S. annual home price growth accelerated again in September. Home prices were up 6.1% on a year-over-year basis, up from an upwardly revised 5.8% increase in August.

However, the Richmond Fed manufacturing index dropped into negative territory at -5 in November.

In other currencies, the euro rose to a 3-1/2-month peak of $1.1009. It last changed hands at $1.0981, up 0.3%.

Sterling also gained, climbing to its highest since Sept. 1. The pound was last up 0.4% at $1.2685.

Traders are now eyeing the U.S. core personal consumption expenditures (PCE) price index - the Fed's preferred measure of inflation - this week for more confirmation that inflation is slowing.

PCE tops off a slew of other key economic events this week, including flash inflation data from major euro zone economies, with bloc-wide data due Thursday, Chinese purchasing managers' index (PMI) data and an OPEC+ decision on crude output.

The dollar fell 0.8% to 147.49 yen, with the Japanese currency continuing its recovery from the brink of 152 per dollar earlier in the month.

The dollar also slid 0.2% to 0.8762 Swiss francs, its lowest level since the start of September, and the Australian dollar briefly touched a near four-month high of US$0.6665.

The New Zealand dollar hit its highest since August at US$0.6147. It was last at US$0.6127, up 0.5%. The Reserve Bank of New Zealand has its monetary policy meeting on Wednesday, where it is expected to keep interest rates steady at 5.50% for the fourth straight time.

In cryptocurrencies, bitcoin rose 2.7% to $38,228.

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Currency bid prices at 3:43PM (2043 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 102.7900 103.1400 -0.32% -0.676% +103.3200 +102.6000

Euro/Dollar $1.0983 $1.0954 +0.26% +2.50% +$1.1009 +$1.0935

Dollar/Yen 147.4850 148.6900 -0.80% +12.50% +148.8200 +147.3250

Euro/Yen 162.00 162.85 -0.52% +15.45% +162.9200 +161.9300

Dollar/Swiss 0.8781 0.8805 -0.25% -5.01% +0.8818 +0.8762

Sterling/Dollar $1.2688 $1.2630 +0.43% +4.88% +$1.2714 +$1.2608

Dollar/Canadian 1.3580 1.3617 -0.27% +0.23% +1.3619 +1.3561

Aussie/Dollar $0.6643 $0.6607 +0.54% -2.55% +$0.6665 +$0.6597

Euro/Swiss 0.9643 0.9641 +0.02% -2.55% +0.9655 +0.9632

Euro/Sterling 0.8653 0.8672 -0.22% -2.16% +0.8683 +0.8655

NZ $0.6128 $0.6098 +0.49% -3.49% +$0.6147 +$0.6082

Dollar/Dollar

Dollar/Norway 10.6210 10.6440 -0.16% +8.28% +10.7090 +10.6200

Euro/Norway 11.6663 11.6460 +0.17% +11.17% +11.7400 +11.6299

Dollar/Sweden 10.3352 10.4252 -0.54% -0.70% +10.4439 +10.3145

Euro/Sweden 11.3517 11.4134 -0.54% +1.81% +11.4338 +11.3510