The US dollar dropped sharply in today's trading session, hitting its lowest level since October 2024. The decline was triggered by weaker-than-expected inflation data, which strengthened market expectations that the Federal Reserve may soon move to cut interest rates.
Amid a fragile economic environment, investors are closely watching the next moves of the Fed, with dollar volatility expected to increase in the coming days.
US Inflation Falls Below Forecasts, Fueling Dollar Weakness
Fresh data from the US Consumer Price Index (CPI) for March 2024 revealed a slower pace of inflation. Headline CPI rose by just 2.4% year-over-year, the lowest reading in six months and below analysts' expectations of a 2.6% increase.
Core inflation—which excludes volatile food and energy prices—also came in below forecasts at 2.8%, versus the anticipated 3%. This cooling of inflation supports hopes that price pressures in the US economy are finally easing, reinforcing speculation that the Fed could pivot toward a more dovish monetary policy stance.
These CPI results are a key factor in shaping the outlook for the US dollar today, as lower inflation often leads to reduced rate hike expectations and dollar weakness.
Markets Price in June 2024 Fed Rate Cut
Following the inflation data, the probability of a 25 basis point rate cut in the Fed’s June 2024 meeting surged to 62.7%, while odds of a deeper 50 basis point cut climbed to 22%, according to market pricing tools.
This shift in sentiment signals growing concerns about a potential economic slowdown in the United States, encouraging investors to bet on an earlier-than-expected rate cut by the Fed.
As US interest rate expectations shift, the greenback may face further headwinds, especially if upcoming data continues to point toward economic cooling.
Dollar Index Drops 2% Amid Producer Price Data Anticipation
The US Dollar Index (DXY) fell by 2.05% during the day, hitting 100.80 points, reflecting notable weakness in the currency. This marks its lowest level in half a year and highlights how sensitive the dollar has become to economic surprises.
Despite today’s losses, traders remain focused on upcoming data—particularly the US Producer Price Index (PPI) due tomorrow. A weaker-than-expected reading could intensify bets on rate cuts, placing additional pressure on the dollar.
Investors monitoring US inflation trends and Federal Reserve decisions are now eyeing PPI data as a key trigger for short-term moves in the dollar.
