Cooling inflation and expectations that the Federal Reserve is nearing the end of one of the most aggressive hiking cycles in the central bank's history have pushed the dollar to a new low against its peers.

The US dollar index, which measures the greenback against a basket of six G10 currencies, has fallen nearly 13% from its September peak, as the Fed has slowed its hiking pace. In June, the Fed did not hike rates for the first time since March 2022, although it is expected to enact another 25 basis point increase at its next meeting later this month.

Slowing inflation growth has bolstered the dollar's G10 peers, causing these currencies to all gain on the greenback since June after the dollar rallied as the Fed hiked its benchmark interest rate above 5% through a series of increases since March 2022.

The US dollar tends to rise with rate hikes as investors move to dollar-denominated investments, such as US Treasury bonds, in order to take advantage of rising interest rates. A strong US dollar can lower the price of foreign goods but increase the price of goods in overseas markets and chill global demand. The US dollar rally in 2022 contributed to rising inflation worldwide and increased the costs of foreign debt service.

Dollar losing ground

The slowdown in inflation and rate hikes have caused every G10 currency to gain on the dollar since the start of June. The Norwegian krone and Swedish krona have gained the most, rising 10.85% and 6.04%, respectively, over that time.

The British pound and euro, which were battered by the dollar at the apparent height of the Fed's hiking cycle, have significantly rallied against the greenback from their September lows. Since Sept. 27, the pound has climbed 21.68% against the dollar while the euro has gained 17.03%.