LIVE MARKETS-Fundamental support for the dollar eroding

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FUNDAMENTAL SUPPORT FOR THE DOLLAR ERODING

The U.S. dollar is heading for its sixth straight monthly drop against a basket of currencies and trades at its lowest in 3-1/2 years, and Scotiabank believes there's further to fall as markets add to bets on easing from the Federal Reserve.

Markets are now fully pricing two quarter-point rate cuts by the end of the year and about a 50% chance of a third.

"The December 2025 and December 2026 fed funds futures contracts have each added about 20bpts of easing over the past week or so, reflecting an ongoing deterioration in US data and a marginally dovish shift in Fed communication," writes Scotiabank chief FX strategist Shaun Osborne.

Trump has also been critical of the Fed Chair Jerome Powell and investors are betting that he will be replaced by somebody more open to lowering borrowing costs when his term ends next year.

While expectations for Fed rate cuts have ramped up, the ECB, which has already cut rates eight times this cycle, has signalled its latest cut could be its last for now.

"Fundamental support for the USD has eroded as rates markets have repriced to reflect greater expectations for Fed easing," writes Osborne.

"Our fair value assessment has started to show a meaningful decline, and we're anticipating further weakness for the USD."

(Samuel Indyk)

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