November has disappointed the dollar and is set for a downward spiral well into 2024. The US Dollar Index, which tracks the green giant’s strength against six other currencies, including the euro, pound, and Japanese Yen, has taken a 3.3% dive since the beginning of Nov.

What is causing the weakening of the dollar, and how will it impact investors?

A big dollar sell-off is happening as the Federal Reserve looks to end its aggressive interest rate hike agenda.

The Fed will implement several rate cuts next year as the fight against inflation is being won. This will make investors believe that holding so much US currency may not be as necessary.

Reduced interest rates are expected to lower the appeal of dollar-denominated assets. As US interest rates fall, the interest rate differential between the dollar and other currencies narrows. Therefore, it lessens the yield advantage that has attracted investors to the US currency over time.

Moreover, the likelihood of several rate cuts by the Federal Reserve is prompting investors to seek higher-yielding assets elsewhere, leading to the accelerated exit from the dollar.

“Investors increasingly believe that the Federal Reserve’s most aggressive interest rate hiking campaign in a generation is winding down,” says Nigel Green, CEO of deVere Group. “The dollar traditionally performs well at the start of the year, but it is likely that it will consistently weaken during the course of next year as the Fed moves to ease its grip on rates.”

Investors are looking for alternative investments in currencies from other regions that have more promising interest rate outlooks.