Dollar's days in doldrums may end in December as Fed likely to silence 'pivoteers'

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By Yasin Ebrahim

AiVIF.com -- The dollar has been on the ropes since mid-October, but its wobble can be explained away by profit talking and could be nearing an end as soon as December, when the Federal Reserve is expected to squeeze the life out of the “pivoteers” once again.  

“We expect a strong dollar until at least the Fed Funds rate peaks in Q1 next year, and the market is able to price in a definitive Fed pause,” Oxford Economics said in a note, attributing the recent pullback in greenback to the “squaring of overstretched Dollar longs."

The dollar’s date with destiny isn’t far away. In just under a month, the Federal Reserve Open Market Committee is set to deliver another widely expected rate hike, which is currently forecast to be 0.5%, according to AiVIF.com’s Fed Rate Monitor Tool.

That would mark a slower pace of rate hikes from the jumbo-sized 0.75% rate hikes delivered at each of the last four meetings. But the focus, for the greenback at least, will squarely be on whether the central bank believes its job of curbing inflation is nearing the end game, paving the way for a pivot.

Recent data pointing to slowing inflation has brought out the “pivoteers," but the messaging from a slew of Fed members this week suggests the Fed isn’t eager to declare victory against inflation just yet. The release of the Fed's minutes from its October meeting is likely to reinforce the message.

The pivoteers have “already been rebuffed by recent Fed-speak once more, but the coming week is likely to reinforce this message,” Scotia Economics said in a note, ahead of the Fed minutes expected next week.

At the December meeting, the Fed will likely continue to insist that a pause is unlikely to come sooner rather than later, helping to stabilize the dollar.

“If the Fed continues to push back the "inflation has turned" narrative – which we expect – then the dollar will consolidate its gains around current levels and not weaken much further,” Oxford Economics added.