The Dollar Has Fallen, Here Is Why

To avoid escalating tensions with Russia, Western authorities minimized the impact of a lethal missile attack on a Polish hamlet, which led to a decline in the value of the U.S. dollar in early European trade on Wednesday.

The Dollar Index measures the dollar’s value against six other currencies. It declined 0.3% to 106.013 at 02:55 E.T. (07:55 GMT) on Wednesday after reaching a high of 106.76 earlier in the day.

Russian-Poland Conflict

News that a Russian missile killed two people in a town in NATO-member Poland near the border with Ukraine sent dollars to a safe haven on Wednesday. The news raised concerns about the escalation of the conflict in Ukraine. Although the inquiry was underway, U.S. President Joe Biden said early intelligence shows Russia probably did not launch the weapon. Moscow, though, disputed responsibility for the strike.

A weaker-than-expected increase in producer prices, coupled with the recent lukewarm consumer inflation data, led to the selling of the dollar on Tuesday, suggesting that the Federal Reserve’s aggressive rate-hiking cycle may be coming to an end. The U.S. dollar will peak by the end of 1Q23, according to UBS analysts, who believe it is too early to predict a significant weakening in the currency.

After statistics revealed that U.K. inflation rose to a new multi-decade high in October, driven by rising food and energy prices, GBP/USD traded steady at 1.1858, slightly below its best level in three months.

The risk-sensitive AUD/USD increased by 0.1% to 0.6763, maintaining its gains despite the escalating geopolitical concerns, while the EUR/USD increased by 0.4% to 1.0389, close to a three-month high. While USD/CNY increased by 0.5% to 7.0770, USD/JPY rose by 0.2% to 139.62. The yuan was negatively impacted by data showing that Chinese home prices fell to a seven-year low in October. This came after gloomy reports on retail sales and industrial output earlier this week, which suggested that the second-largest economy in the world was under pressure.