Following the cautious shift in monetary policy by the Federal Reserve (Fed), currency speculators have reduced their expectations regarding the strength of the U.S. dollar. This adjustment came in response to a surge in demand for higher-yielding currencies.
Demand for investment options
Bloomberg’s report indicates that the demand for investment options that capitalize on the appreciation of the U.S. dollar has reached its lowest point in over three years. Conversely, investments that generate profits in the event of a decline in the U.S. dollar have seen increased popularity, as indicated by a one-month risk reflection index. Additionally, the projected strength of the Japanese yen’s exchange rate has reached a near five-month high.
For the third consecutive time, the Fed decided on Wednesday to keep interest rates unchanged, maintaining them at the highest level in 22 years, specifically ranging from 5.25 percent to 5.5 percent.
According to a recent economic forecast by the Fed, the era of significant tightening in U.S. monetary policy has come to an end. The forecast predicts a decline in borrowing costs in 2024, with expectations of a 75 basis point drop over the next year.
In their latest statement on monetary policy, U.S. central officials acknowledged the deceleration of inflation over the past year. They highlighted their intention to closely monitor the state of the economy to determine if any additional interest rate increases would be necessary. Additionally, officials explicitly mentioned the possibility that further rate hikes may not be required, given the recent substantial tightening measures implemented over the course of several months.
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