The dollar index was last at 103.11, its lowest since August 31

The U.S. dollar dropped to a three-month low against peer currencies on Tuesday after sliding overnight on weaker-than-expected new home sales data, while traders hunkered down on bets that the Fed could start cutting interest rates in the first half of 2024.

U.S. new home sales dropped 5.6 per cent to a seasonally adjusted annual rate of 679,000 units in October, data showed, below the 723,000 units expected by economists polled by Reuters and sending Treasury yields lower.

The dollar index, which measures the greenback against a basket of currencies, was last at 103.11, its lowest since August 31. The dollar was on track for a loss of over 3 per cent in November, its worst performance in a year.

Market expectation that the Fed’s rate hike cycle has finally come to an end has also put downward pressure on the dollar. U.S. rate futures showed nearly 25 per cent chance that the Fed could begin cutting rates as early as March and rising to around 45 per cent by May, as per the CME FedWatch tool.

Slowing growth momentum, peak rates, rate cuts next year, and unwinding of long positioning: it is the dynamic feeding a weaker U.S. dollar and driving the entire currency complex, said Kyle Rodda, senior financial market analyst at Capital.com.

Anything that brings that trend into question will change the outlook; nevertheless, the bar for that to happen is high, Rodda said, adding the dollar possibly has more room to drop.

Traders are now eyeing U.S. core PCE price index this week for more confirmation that inflation in the U.S. is slowing.