More than 50 percent of This Year's Gains Are Erased by the US Dollar Due to Fed Bets

The USD has lost nearly half of its gains from this year amid rising anticipation that the Federal Reserve will scale down its hawkish rate increases. At the same time, as confidence about China's intentions for reopening rises, a US services barometer indicated that the US economy is still robust. 

Latest info that revealed the Institution for Supply Management's barometer of services increased unexpectedly in November, the Dollar Spot Index increased by as much as 0.8%, snapping a four-day losing trend. All Group-of-10 forex peers fell as a result of the broad dollar rise, with the Japanese yen being the weakest performer due to increased US Treasuries and a reduction in newly built speculative long positions. The euro reversed earlier gains while limiting losses through real money purchases.

According to experts, asset markets are currently highly connected, and when the US releases positive data, stocks fall, rates go up, and the USD climbs along with them. As the US CPI print approaches, many of the changes we've witnessed over the past several weeks will start to slow down a bit as investors position themselves in front of the data. As risk currencies appreciated, the gauge dropped as much as 0.4% in Asian trading on this Monday, reaching its lowest point since the end of June. Just after Chinese cities Shanghai and Hangzhou lifted some Covid restrictions in an effort toward reopening the world's second-largest market, the gauge is expected to decline for a fifth day, the longest losing streak since April 2021.

The expectation of China reopening and the Fed's adjustment of its policy are two crucial themes that should maintain support for risk proxies like commodity-linked currencies. The USD only jerked back in response to last Friday's solid non-farm payrolls report. The dollar is increasing after falling 1.3% previous week. In a speech on Wednesday, the chairman of the Federal Reserve suggested a slowing of rate increases while stating that the battle with inflation is far from over. By last Friday, greater US jobs data had once again guaranteed investors of further increases ahead of the Fed's December meeting, and the dollar was able to close the day with minimal change.