Dollar loses ground amid expectations of the Fed's interest rate peak

As more Federal Reserve officials point to a slowdown in interest rates and traders suggest that peak rates might be close, the US dollar is beginning to weaken.

On Monday, Fed Vice Chair Lael Brainard became the latest Fed spokesperson to comment on the state of the Central Bank's fight against inflation. Brainard echoed Fed Governor Christopher Waller's comments that interest rates should continue to rise in order to fight inflation.

In an interview with Bloomberg in Washington DC, Brainard said that moving to a slower pace of interest rate hikes would soon be appropriate. She also highlighted the fact that the Fed has a lot of extra work to do.

The Fed is expected to raise rates by only 50 basis points in December. Whereas, at the last four meetings, rates were raised by 75 basis points.

Such a change in stance means that the US dollar has peaked and should fall in 2023, according to Morgan Stanley. The bank came to these conclusions on the assumption that the Fed will finally raise the rate in January 2023 with the rate cut following in the fourth quarter.

The bank expects the Dollar Index to fall to 104 by the end of 2023.