Why Is the Dollar Losing Recent Gains?

On Monday, investors digested favorable euro zone statistics and sought to profit from the strength of the US currency. It helped the euro and pound rise versus the safe-haven dollar.

A survey conducted on Monday shows that investor sentiment in the Eurozone rose in November for the first time in the last three months. The move suggests that gas rationing will not be necessary for Europe this winter due to warmer-than-expected weather and lower energy costs. GBP last traded at $1.1534, up 1.40% on the day. Meanwhile, the euro was up 0.69% to $1.0029, its best since October 27.

German industrial production for September beat analysts’ estimates, cheering investors, according to a report on Monday. According to the Federal Bureau of Statistics, industrial production rose 0.6 percent last month.

Outlook on Monetary Markets

The dollar index dropped to 110.070, down 0.91%. The dollar fell on Monday after losing over 2% at the end of last week due to concerns that China might significantly alter its COVID-19 policy in the coming months, according to Bipan Rai, head of FX Strategy for North America at CIBC Capital Markets. Investors also weighed Friday’s US employment data. These companies added more positions in October than expected (261,000) and increased hourly wages. This means a stable labor market. However, as the unemployment rate rises to 3.7%, some signs of improving market conditions have fueled hopes that the long-awaited Fed recovery may be imminent, suggesting the currency could appreciate.

On Friday, four Fed members also said they would continue to contemplate a modest interest rate increase at their next policy meeting. Investors are currently greatly anticipating Thursday’s consumer price index data release. The headline CPI will come in at 8% annually for October, slightly less than the 8.2% predicted in September.

If the print is greater than anticipated, Rai believes that the release valve will be a higher terminal rate in the US, which would eventually affect the currency’s value. Bitcoin recently dropped 1.41% to $20,837.00, while Ethereum dropped 2.76% to $1,600.30 in cryptocurrency.