Dollar’s losing streak keeps traders wary as Fed cuts rates

The dollar’s longest monthly losing streak in 20 months is fueling anxiety among currency traders after the Federal Reserve finally embarked on its interest-rate cutting cycle.

The Bloomberg Dollar Spot Index has fallen nearly 1% in September, set for a third month of losses and the longest weakening streak since January 2023. Speculative traders are positioned for even more declines ahead, according to the latest Commodity Futures Trading Commission data.

Sentiment is “still bearish,” said Skylar Montgomery Koning, a foreign-exchange strategist at Barclays, who reckons traders have already priced in the impact of lower US borrowing costs. “There are a lot of moving parts.”

The dollar index has fallen roughly 3.6% since late June as market participants grew more confident that Fed officials would soon start lowering borrowing costs. The downward trade continued in the days since policymakers kicked off their cutting cycle with a bigger-than-expected half-point move.

But as the debate intensifies around the size of the next reduction in November and the outcome of the US elections, some strategists are urging clients to avoid the greenback altogether.

Yusuke Miyairi, a currency strategist at Nomura International Plc, expects the dollar to remain weak as investors scour economic data for clues on the pace of rate cuts ahead. He expects policymakers to lower rates by a quarter-point in November, though some traders in the swaps market still see a solid chance of a larger move.

Fed Chair Jerome Powell downplayed the urgency in lowering borrowing costs as revisions to incomes has helped reduce downside risks to the economy. His comments pushed traders to price in less monetary easing at the upcoming meetings and boosted the greenback. The Bloomberg Dollar Index rose 0.4% on the day.

Elsewhere, the dollar’s malaise has offered boosts to peers including the Japanese yen, which also benefited from renewed expectations of Bank of Japan interest-rate hikes. The currency was among the world’s best performers this month, taking its quarter-to-date gains to about 12% — the biggest rally since late 2008.

China’s efforts to revive economic growth will also add pressure to the dollar as long as investors continue to embrace riskier assets, said Gary Cameron, portfolio manager at Garda Capital Partners.