According to the Financial Times, investors from all over the world are selling dollars at the fastest rate in a year.
Major market participants are getting rid of the greenback amid rising expectations that the US Federal Reserve is done hiking interest rates and will start cutting them in 2024. Interestingly, being a reflection of the American financial system, the dollar has always been a symbol of stability and reliability. Now the situation has changed, with investors seeking shelter in other assets.
Asset managers are ready to sell 1.6% of their dollar positions this month, marking the largest monthly cash outflow since November 2022. There have only been six such rapid unwinds of dollar holdings in the past 20 years, analysts at US custody bank State Street estimate.
Such sales indicate the unraveling of "an unusually large US [dollar] overweight" position. Against this background, the greenback is likely to extend losses, the bank assumes.
Notably, in July 2023, the Federal Reserve raised the key interest rate by 25 basis points to a range of 5.25%-5.5%, the highest since 2001. Given that the US inflation rate stood at 3.2% in October, market participants now expect the central bank to lower its policy rate by the end of 2024. The first rate cut is forecast to happen in May next year.
