The dollar experienced its worst trading session in five months, falling over 1% against the euro to its lowest level in over a year and incurring greater losses elsewhere.

The euro reached a new 15-month high of $1.1141, while the yen increased 0.3% to 138.16 per dollar, its strongest since mid-May.

The U.S. dollar index dropped slightly to 100.47, the lowest level since April 2022.

The New Zealand dollar hit a two-month high of $0.6309, while the Australian dollar reached a three-week high of $0.6796.

The recent underperformance of the dollar reflects a qualitative shift in the market’s comfort with being short dollars as the Fed’s policy rate appears to be increasingly capped.

Futures on interest rates indicate that markets have fully priced in a rate rise by the Federal Reserve later this month, but expectations for additional rate hikes are diminishing.

Overnight, two-year Treasury yields fell more than 15 basis points to 4.73 percent.

In Scandinavia, where inflation is sticky and central bankers are predicting additional rate increases, currencies soared, with the Swedish and Norwegian crowns gaining more than 2% and approaching weekly gains of 5%.

The yen has gained 4.8% against the dollar over the past five trading days, and almost as much against other major crosses, as short-sellers have been eliminated and market attention has shifted to whether the Bank of Japan will alter its yield control policy.