Dollar Index Dips Below 100 as Euro and Yen Stage Comeback
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The U.S. dollar weakened sharply on Thursday, with the Dollar Index (DXY) falling below the psychological level of 100 for the first time since April 2023. The decline was driven by cooling inflation data and rising expectations that the Federal Reserve could begin cutting interest rates as early as September. As the greenback slid, the euro and Japanese yen both gained significant ground, fueling a global FX market shift.
The latest U.S. Consumer Price Index (CPI) report showed inflation rising just 2.6% year-over-year, below the market forecast of 2.8%. The surprise cooldown in inflation has led to a swift repricing of rate expectations. According to CME’s FedWatch Tool, traders now see a 67% chance of a rate cut by September, up from 48% just last week. This dovish sentiment has put downward pressure on the dollar across the board.
The euro climbed to 1.1265, its highest level in nearly a year, while the Japanese yen strengthened to 136.20 per dollar. FX strategists believe the momentum could continue if the Fed confirms its shift away from tightening. Meanwhile, the Bank of Japan and European Central Bank are seen as holding steady or moving cautiously, giving their currencies a comparative advantage in the short term.
The British pound also posted gains, reaching 1.3150 after comments from Bank of England Governor Andrew Bailey suggested a more hawkish stance amid persistent wage pressures in the UK. Commodity-linked currencies like the Australian dollar and Canadian dollar rose as well, benefiting from the dollar’s weakness and rising global risk appetite.
For investors and traders, the dollar’s recent slide has revived interest in carry trades and emerging market currencies. Analysts warn, however, that volatility could return quickly if upcoming U.S. economic data or Fed statements diverge from market expectations. The bond market is also watching closely, with 10-year Treasury yields dipping to 3.92% in response to the inflation print.
In the crypto market, the softer dollar has contributed to rising prices across major digital assets. Bitcoin and Ethereum both surged on the day, partly due to increased demand as alternative stores of value. Market participants often turn to crypto when fiat currencies face downward pressure, and today was no exception.
With the dollar at a key technical level, the next few sessions will be critical in determining whether the slide continues or finds support. For now, global currencies appear to be regaining strength at the expense of the greenback, reflecting a broader shift in market sentiment.
